Bertelsmann Music Group (BMG) is an interesting case of a company exiting the music business in the 2000s and re-entering it in 2009 to invest billions of dollars in publishing and master catalogues and to become the fourth largest music company in the world behind the three majors – Universal, Sony and Warner. BMG’s re-entry into the music industry thus marks the first phase of the boom around the purchase of music rights, which is examined more closely in this case study of BMG.
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Music as an Investment – Part 2: BMG re-enters the music rights business
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In the early 2000s, Bertelsmann Music Group (BMG) was one of the five music majors with a huge label conglomerate and one of the largest music publishing companies in the world, alongside Universal, Sony, Warner and EMI. However, BMG suffered in the digital revolution from decreasing recorded music sales. After the financial and legal disaster surrounding the purchase of the P2P filesharing platform Napster, the parent company, Bertelsmann AG, pulled the emergency brake and prepared the exit from the crisis-ridden music industry. In 2004, therefore, BMG merged with Sony Music Entertainment to form Sony-BMG, and four years later Bertelsmann withdrew completely from the phonographic industry by selling its share in the joint venture to Sony (Tschmuck 2012: 178). Previously, in May 2007, BMG had already sold its huge music publishing catalogue to Universal Music Publishing for EUR 1.6 billion.[1] In 2008, BMG had almost completely left the music industry and only existed as a corporate shell for the exploitation of a few music rights catalogues of German and international artists.
All the more surprisingly, BMG made a comeback in the music industry in 2009. In September 2009, the EU competition authority approved a joint venture between Bertelsmann AG and the US investment company Kohlberg Kravis Roberts & Co (KKR), which led to the creation of BMG Rights Management. BMG contributed the remaining music catalogue to the new company and KKR provided a total of EUR 250 million for the acquisition of publishing catalogues in return for a 51 per cent share in the joint venture.[2]
This was the first time an investment fund had entered the music publishing business, even though BMG Rights Management continued to operate as a traditional music publisher. With fresh capital, however, the company could now go on a shopping tour. The first acquisition was the US music publisher Cross Town Roads, whose catalogue of more than 8,000 titles includes songs such as “Toxic” (Britney Spears), “Livin’ La Vida Loca” (Ricky Martin) and “All I Wanna Do” (Cheryl Crow).[3] In the spring of 2010, rumours emerged that BMG Rights Management was interested in buying EMI’s music publishing branch.[4] EMI Music Publishing eventually was purchased by Sony/ATV Music Publishing in a US $2.2 billion takeover in 2012,[5] but BMG Rights Management had instead bought US music publisher Cherry Lane,[6] Italian publisher Pressing Line,[7] UK music publisher Stage Three,[8] US publishers Adage IV[9] and Evergreen Copyrights,[10] three French music publishers (Sur La Route, Editions Louis Chedid and Music Addict Publishing & Editions PRK Music)[11] and a 50 per cent stake in Danish TG Publishing[12] in 2010. In November 2010, BMG landed its biggest deal, worth GBP 107.4 million, when it bought Chrysalis Music Ltd.’s publishing catalogue of more than 100,000 songs, including hits by David Bowie, Michael Jackson and Blondie.[13] BMG also bought Los Angeles-based Bug Music Publishing in 2011 for US $300 million, which has standards like “What a Wonderful World”, “I Walk the Line” and “Summer in the City” in its catalogue.[14]
The next megadeal followed in 2012, when BMG engaged in a bidding battle with Warner/Chappell for the so-called “Rosetta” catalogue, which Sony/ATV had to sell due to competition restrictions in the course of the EMI Music Publishing deal. BMG succeeded with a reported purchase price of US $90 million and expanded its publishing portfolio to include Virgin Music Publishing UK, Virgin Europe, Virgin US and Famous Music UK, with hits such as Nirvana’s “Smells Like Teen Spirit,” Robbie Williams’ “Let Me Entertain You” and Culture Club’s “Karma Chameleon”.[15]
Three years after its re-entry into the music industry, BMG had risen again to become the world’s fourth-largest music publisher thanks to the financial resources of KKR and parent company Bertelsmann AG, even though the gap to the three major publishers Universal Music Publishing, Sony/ATV and Warner/Chappell was and still is considerable.[16]
In 2013, BMG bought two-thirds of the catalogue of US music publisher Primary Wave in a US $150m deal, and BMG/Primary Wave Artist Services was created as a marketing agency for the artists under contract.[17] BMG has thus also entered the agency business, at least in the USA.
BMG, however, did not grow only as a music publisher, but bought Mute Records for an estimated GBP 7 million, which Universal Music Group (UMG) had divested in the course of the EMI Records takeover due to competition restrictions.[18] Already in February 2013, Sanctuary Records, which Universal also had to sell on the orders of the competition authorities, was acquired by BMG for around GBP 40 million.[19] Thus, after almost completely exiting the phonographic market in 2008, BMG Rights Management was back in the label business five years later. In contrast to its days as a music major, however, BMG no longer sees itself as a traditional music company with a phonographic and publishing division, but as a music rights company that exploits both publishing and master rights.[20] This is also visible in the merger of the publishing and label divisions under a single management in 2016.[21]
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Figure 1: BMG’s acquisitions from 2009 to 2013
Source: Annual reports of Bertelsmann AG, 2009-2013
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In March 2013, KKR withdrew from the joint venture and Bertelsmann AG acquired KKR’s 51 percent stake in BMG Rights Management for EUR 300 million.[22] BMG thus became a fully-fledged division of Bertelsmann AG, managing more than 1 million song rights and around 250,000 master rights (Bertelsmann 2013: 39-40).
Despite the exit of KKR, BMG purchased further publishing and label catalogues in the following years, as shown in figure 2. Most notable is the US $97m purchase of the Broken Bow Records Music Group (BBR Music Group) in 2017 and the start of a cooperation with Chinese music and entertainment company Giant Jump in 2014, marking BMG’s entry into the Chinese market. In the same year, BMG also established an office in Beijing and a year later announced the signing of a digital distribution deal with Chinese internet giant Alibaba (Bertelsmann 2015: 60). BMG also diversified its business beyond publishing and label operations by taking a majority stake in the German music promoter Undercover in 2020[23] and purchased concert agency KARO a year later.[24] In 2022, Undercover staged 441 live shows and concert and BMG entered into a long-term collaboration with Berlin’s Theater des Westens to produce musicals (Bertelsmann 2023: 27).
Another business segment that BMG has developed is production music, i.e. music that is produced specifically for use in radio, TV, cinema films, advertising, games, image films, social media channels etc. and can usually be accessed via music libraries. In 2017, BMG founded BMG Production Music as a subsidiary to integrate all acquisitions in this segment with the company’s own production activities.[25]
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Figure 2: BMG’s acquisitions from 2014 to 2022
Source: Annual reports of Bertelsmann AG, 2014-2022 and BMG press releases for the period
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Nevertheless, BMG’s acquisition activity has slowed down in recent years. It is therefore not surprising that in March 2021 the investment company Kohlberg Kravis Roberts & Co. (KKR) again partnered with BMG to jointly buy music rights,[26] after KKR had bought the song rights of One Republic frontman Ryan Tedder for a reported US $200 million in January 2021.[27] According to media reports, the agreement commits Bertelsmann AG and KKR to provide US $500 million for acquisitions each. In the future, both contracting parties will equally participate in half of the acquired rights.[28]
It seems reasonable to assume that BMG does not want to fall behind its competitors in the current sales boom of music catalogues. Not only the major music publishers have made headlines with multi-million acquisitions, but also new players like Hipgnosis, Round Hill and Primary Wave are spending hundreds of millions to acquire song rights. The acquisitions are not just limited to the purchase of other music publishers, but artists’ and writers’ shares in royalty streams are directly acquired from interpreters and songwriters.
This was also the case with BMG and KKR, which jointly purchased the publishing catalogue and the master rights of the US rock band ZZ Top for an estimated US $50 million in 2021.[29] Previously, BMG had acquired an entire rights package from Tina Turner for more than US $50 million, which included the artist’s share of her recordings, her music publishing writer’s share, neighbouring rights as well as her name, image and likeness.[30] Shortly afterwards, BMG also acquired the master rights to the recordings of the glam metal band Mötley Crüe for US $90 million.[31] KKR, for its part, bought the KMR Music Royalties II portfolio from Swedish music publisher Kobalt for US $1.1 billion through its investment vehicle Chord Music Partners.[32]
This is far from the end of BMG’s and KKR’s shopping tour. In 2022, both partners jointly acquired John Legend’s songwriting catalogue[33] and BMG also bought all publishing rights to the songs of blues legend John Lee Hooker as well as his author and master royalty shares.[34] Still in 2022, the acquisition of the publishing rights to more than 240 songs as well as the performance rights and shares in all master rights of the Scottish band Simple Minds[35] followed, as well as the purchase of a 50 per cent share in the author rights to the albums of the band Primal Scream.[36] The biggest acquisition of the year was the purchase of the largest German Schlager label Telamo.[37] Therefore the investment volume of EUR 389 million in 2022 has once again topped that of the previous year, which already reached a high of EUR 281 million.
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Figure 3: BMG’s music catalogue investments, 2013 to 2022
Source: Annual reports of Bertelsmann AG, 2013-2022
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The annual revenue and profit figures also reflect BMG’s expansive rights acquisition strategy. Overall, the revenues of BMG Rights Management, which reports as an independent business division since 2015, quadrupled to EUR 866 million between 2013 and 2022. In each of the years, BMG reported an increase in revenue, which was lowest in 2019 and 2020 due to a lack of larger acquisitions. It was not until 2021 that the revenue increased by around 10 per cent due to BMG’s entry into the live business. The revenue mix has shifted strongly from sound recording sales to licensing income since 2016, when it was reported for the first time. The revenue share of “products & goods” – mainly CD sales – was 27 per cent in 2016, but decreased to 8 per cent in 2022. This, however, had no impact on earnings figures. On contrary, the new focus on licensing turned a loss of EUR 14 million in 2013 to a profit of EUR 195 million in 2022.
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Figure 4: BMG’s revenue mix, 2016 and 2022
Source: Annual reports of Bertelsmann AG, 2016 and 2022
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Figure 5: BMG’s revenue and EBITDA, 2013-2022
Source: Annual reports of Bertelsmann AG, 2013-2022
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Conclusion
The development of revenues and profits impressively reflects the increasing economic relevance of rights exploitation in the music streaming age, which is also reflected in BMG’s strategic orientation as a music rights company. BMG is not a traditional recording company with a publishing arm, but a music licensing agency that signs new performers as well as songwriters and focuses on the exploitation of music rights catalogues. BMG Rights Management is therefore a good example of the convergence process in the music industry, in which not only label and publishing activities are integrated, but also the live music business, as evidenced by the acquisition of a majority stake in Undercover, the purchase of the KARO concert agency and the long-term rental of the Theater des Westens in Berlin. BMG has thus become an integrated music rights company that offers numerous services for its signed artists and, above all, monetises their rights. Beyond that, it has also entered the German music event business and therefore combines publishing, recording and live music activities.
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Sources
Bertelsmann, 2014, Annual report of Bertelsmann AG 2013, Gütersloh.
Bertelsmann, 2015, Annual report of Bertelsmann AG 2014, Gütersloh.
Bertelsmann, 2016, Annual report of Bertelsmann AG 2015, Gütersloh.
Bertelsmann, 2017, Annual report of Bertelsmann AG 2016, Gütersloh.
Bertelsmann, 2018, Annual report of Bertelsmann AG 2017, Gütersloh.
Bertelsmann, 2019, Annual report of Bertelsmann AG 2018, Gütersloh.
Bertelsmann, 2020, Annual report of Bertelsmann AG 2019, Gütersloh.
Bertelsmann, 2021, Annual report of Bertelsmann AG 2020, Gütersloh.
Bertelsmann, 2022, Annual report of Bertelsmann AG 2021, Gütersloh.
Bertelsmann, 2023, Annual report of Bertelsmann AG 2022, Gütersloh.
Tschmuck, Peter, 2012, Creativity and Innovation in the Music Industry, 2nd edition, Heidelberg etc.: Springer.
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Endnotes
[1] Reuters, “Universal Music closes on BMG, asset sales expected“, May 25, 2007, accessed 15.03.2023.
[2] Billboard, “EU clears Bertelsmann, KKR music rights JV“, September 9, 2009, accessed 15.03.2023.
[3] Billboard, “BMG Acquires Crosstown Songs America“, July 23, 2009, accessed 15.03.2023.
[4] Billboard, “BMG Rights Plans Acquisitions, Would Look At EMI“, March 23, 2010, accessed 15.03.2023.
[5] Billboard, “Sony-Led Group Closes Purchase of EMI Music Publishing“, June 29, 2012, accessed 15.03.2023.
[6] Billboard, “BMG Rights Management To Acquire Cherry Lane“, March 26, 2010, accessed 15.03.2023.
[7] Billboard, “BMG Rights Management Acquires Pressing Line“, April 9, 2010, accessed 15.03.2023.
[8] Presseaussendung BMG, “BMG Acquires Stage Three Music“, July 15, 2010, accessed 15.03.2023.
[9] Billboard, “BMG Acquires Adage IV Catalog“, June 3, 2010, accessed 15.03.2023.
[10] Billboard, “BMG To Buy Evergreen Copyrights“, September 20, 2010, accessed 15.03.2023.
[11] Billboard, “BMG Rights Management Acquires More French Catalogs“, April 27, 2010, accessed 15.03.2023.
[12] Billboard, “BMG Signs Deal With Danish Publisher“, October 7, 2010, accessed 15.03.2023.
[13] Billboard, “BMG Acquires Chrysalis“, November 26, 2010, accessed 15.03.2023.
[14] Billboard, “BMG Rights Management to Purchase Bug Music“, September 12, 2011, accessed 15.03.2023.
[15] Billboard, “BMG Beats Warner/Chappell to ‘New Wave’-Heavy EMI Publishing Divestitures for $90 Million“, December 20, 2012, accessed 15.03.2023.
[16] The Hollywood Reporter, “BMG Buys Virgin, Famous Music Catalog From Sony/ATV“, December 21, 2012, accessed 15.03.2023.
[17] BMG press release “BMG And PRIMARY WAVE MUSIC Strike $150 Million Strategic Alliance“, September 3, 2013, accessed 15.03.2023.
[18] Musicweek, “BMG buys Mute catalogue from Universal“, December 21, 2012, accessed 21.03.2023.
[19] Billboard, “Universal Sells Sanctuary Label to BMG“, February 14, 2013, accessed 21.03.2023.
[20] See interview with BMG Rights Management CEO Hartwig Masuch on March 1, 2013 in Billboard Magazine: “BMG CEO Hartwig Masuch On Buying Out KKR: ‘We No Longer Need The Old Label System'”, March 1, 2013, accessed 21.03.2023.
[21] BMG press release, “BMG Brings Together Publishing and Recording Operations Under Single Reporting Line“, October 24, 2016, accessed 21.03.2023.
[22] Billboard, “Bertelsmann Buys Out BMG for $390M“, March 1, 2013, accessed 21.03.2023.
[23] Music Business Worldwide, “BMG expands into live music, buying majority stake in German concert promoter Undercover“, October 21, 2020, accessed 21.03.2023.
[24] BMG press release, “BMG strikes alliance with leading German festival to broaden live offering“, October 26, 2021, accessed 21.03.2023.
[25] BMG press release, “BMG launches full-service international sound agency BMG Production Music“, February 6, 2017, accessed 21.03.2023.
[26] Music Business Worldwide, “A new catalog acquisition juggernaut is born, as BMG and KKR strike deal to jointly buy music copyrights“, March 24, 2021, accessed 03.04.2023.
[27] Music Business Worldwide, “KKR buys majority stake in Ryan Tedder catalog, marking investment giant’s return to music rights ownership“, January 11, 2021, accessed 03.04.2023.
[28] Music Business Worldwide, “BMG and KKR are ready to spend $1bn on music copyrights – and that’s just for starters …“, April 6, 2021, accessed 03.04.2023.
[29] Music Business Worldwide, “BMG and KKR announce first joint acquisition: The ‘entire music interests’ of ZZ Top“, December 21, 2021, accessed 03.04.2023.
[30] Music Business Worldwide, “BMG buys bundle of Tina Turner rights in music’s latest big-money deal“, October 6, 2021, accessed 03.04.2023.
[31] Music Business Worldwide, “BMG buys Mötley Crüe recordings catalog for around $90 million“, November 30, 2021, accessed 03.04.2023.
[32] Music Business Worldwide, “Kobalt sells catalog to new KKR venture, Chord, for $1.1 billion“, October 19, 2021, accessed 03.04.2023.
[33] Music Business Worldwide, “Now John Legend sells: BMG and KKR buy catalog from All Of Me hitmaker“, January 7, 2022, accessed 03.04.2023.
[34] Music Business Worldwide, “BMG acquires music interests of blues icon John Lee Hooker“, February 16, 2022, accessed 03.04.2023.
[35] Music Business Worldwide, “BMG acquires music interests of Scottish rock band Simple Minds“, July 19, 2022, accessed 03.04.2023.
[36] Music Business Worldwide, “BMG acquires Primal Scream song rights“, April 28, 2022, accessed 03.04.2023.
[37] Music Business Worldwide, “BMG buys Germany’s largest independent label, doubling its recorded music revenues in territory“, August 3, 2022, accessed 03.04.2023.
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