Citigroup Rocks, Unfortunately

Katy Perry, The Decemberists, and Snoop Dogg have an unlikely owner at their music label: Citigroup (NYS: C) has seized control of the troubled EMI Group.

Spare us the "Don't Know Why" rendition, Norah Jones. Citi's taking over after taking a bath as a creditor, but it's unlikely to hold the record label for long. If Citigroup has learned anything after watching music sales plunge nearly every year since peaking a decade ago it's that prerecorded music is a depreciating asset. Citi will want to smoke out a buyer before EMI grows even less valuable.

Thankfully for Citi, there are headphone-donning suckers born every minute. Warner Music Group (NYS: WMG) lost out on its bid to acquire EMI four years ago. It's in sorrier shape these days, but it's punch-drunk enough to make a play for EMI for old time's sake even as it tries to smoke out its own buyer. Private equity firms may also show an interest, but it's hard to see why. How do you polish up a label and sell it to someone else for more in a couple of years? It's not as if an IPO is a viable exit strategy. Even the digitally savvy The Orchard was bailed out by a buyout last year. There's a reason why Warner is the last of the stand-alone labels trading publicly.

It seemed as if the music industry was going to make it out alive a couple of years ago when Apple's (NAS: AAPL) iTunes Music Store paved the way for high-margin downloads without the shortcomings of physical distribution. Activision Blizzard's (NAS: ATVI) Guitar Hero franchise made music cool again to gamers -- for a little while. Google's (NAS: GOOG) YouTube opened up the monetization possibilities for music videos through ad-supported revenue sharing.

The labels didn't play along at first. They once thought they could control digital distribution through the flawed MusicNet and pressplay ventures. They even butted heads with YouTube and felt that they were being cheated by video game publishers.

Everyone's at peace now, but nobody cares. WMG posted a widening loss in its latest quarter. Revenue fell 8%, as the slowing growth of digital sales is no match for plummeting disc sales.

Citi may not be in a hurry to unload EMI given the crummy climate for the music industry, but it's not going to get any better. This is what a record producer would call a slow fadeout.

At the time thisarticle was published Google is aMotley Fool Inside Valuerecommendation. Google is aMotley Fool Rule Breakerspick. Apple and Activision Blizzard areMotley Fool Stock Advisorchoices. The Fool has written puts on Apple.Motley Fool Optionshas recommended a synthetic long position on Activision Blizzard. The Fool owns shares of Activision Blizzard, Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Longtime Fool contributor Rick Munarriz once had his band signed to Sony's Columbia Records label. It didn't exactly pan out. He does not own shares in any of the stocks in this story. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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