Blood on the dancefloor at 'The Ministry of Silence'

For a decade the Ministry of Sound could do no wrong. From humble origins in a disused shoe warehouse in south London, its Eton-educated owner James Palumbo created the global dance brand.

With its own music label, clothing range, radio station, magazine and book division, and even a hotel, the Ministry is worth an estimated £80m. A stock-market flotation awaits. Not bad for a toff who prefers opera over house music.

The bubble, in the most faddish of industries, steadfastly refused to burst. Except that last week, 18 people, around one-tenth of its workforce, were made redundant. Out went one senior director, its head of radio and head of travel publishing. Out, too, went the entire press department.

Also recently departed is James Bethell, the son of Lord Bethell and Mr Palumbo's right-hand man. He is said to be on a sabbatical and planning to do an MBA overseas.

What nobody knows is whether the latest cuts are deep-rooted or just part of the Ministry's regular and widely reported clear-outs.

So instead of the usual sound of eardrum-splitting dance music, the Ministry's corridors were filled last week with the wailing of young, energetic staff experiencing redundancy for the first time.

"Some of the people were bawling their eyes out," said one sackee. "But I have seen the cullings before. There is a massacre at work almost once a year and if you're new it is very frightening, but because I have seen it so many times I am not emotional about it."

A current and surviving employee, fearful of talking to the press unless her anonymity was guaranteed, said the stock market flotation – the company received a £24m cash injection earlier in the year in preparation for this – had forced the restructuring. "James," she said, "does run a very tight ship but then we are gearing up for a float. The problem is, people in the media don't realise how the rest of the world functions."

With its press office gone, getting information out of the Ministry has proved even more difficult than normal. Mr Palumbo, the son of Peter Palumbo, the property developer, peer and former Arts Council chairman, with whom he has waged a very public feud, is famously reluctant to talk to the media. It should be called the Ministry of Silence, suggest some wags.

Mr Palumbo's assistant suggested a call to a newly appointed public relations agency called Slice. Slice said it was handling publicity for the Ministry's New Year's Eve party – again to be held at the Millennium Dome – but could say nothing about job cuts.

Eventually, a statement was issued by a woman at the Ministry who was afraid to give her name. It read: "The company can make no comment at the moment regarding redundancies but can state that the company is in the process of restructuring due to the global financial climate."

Having made staff redundant a week last Friday, Mr Palumbo addressed the remaining workforce last Monday and, according to sources, said the reason for the cutbacks was a £1.5-£2m drop in profits. Some insiders blame that on a fall in profits in the Ministry's music label – it has been the phenomenal sale of compilation dance CDs such as The Chill Out Session series that has been the group's cash cow. Another said it was caused by a big loss from an outdoor dance festival held at Knebworth in the summer.

Whatever the reason, there is a sneaking suspicion in the industry that, just perhaps, the Ministry of Sound may finally have had its day.

"As a club they are now seen as naff," asserted Viv Craske, senior editor on Mixmag, the leading clubbing and dance magazine, who was sacked by the Ministry back in 1998 as part of an earlier round of staff culling. "They are seen as naff by cool club goers. The compilations are bought by grannies for their grandchildren at Christmas."

Richard Benson, who edited The Face in the mid to late 1990s and is now a branding consultant, agrees that the Ministry is no longer cool. "They set the industry standard. They were, after all, the first to take the idea of a sound system seriously," said Mr Benson. "But the Ministry is not a very fashionable club. And I think they [the management] know that."