BMG CEO Hartwig Masuch says the company’s days of expansion by acquisition are over, and it will now target organic growth.
For some time the Bertelsmann-owned publishing and records group – once a major label, now reformed as a smaller, independent rights management company – was happy to splash the cash, paying top dollar to acquire companies such as Sanctuary, Chrysalis, Rise and Infectious.
But, in this week’s exclusive Music Week cover story, Masuch says those days are now gone.
“There are no acquisitions out there,” he said. “Well, there are enough out there but, if you look at pricing right now, it’s where we say, ‘Let’s wait a little bit’. It might be problematic to buy at these multiples because it implies an incredibly optimistic view on certain areas.
“I can share [that view] on recordings,” he added. “But, if you look at publishing, you’d expect on some valuations that you’ll see 8-10% market growth. Public performance will not grow at that rate. So the mix is already problematic, because performance was two thirds of global publishing income over the last few years. You might end up having publishing growth rates of around 2-3% globally. We’d feel very uncomfortable to buy on that level.”
Masuch said BMG had kicked the tyres on recent big publishing sales such as Imagem – sold to Concord for a figure believed to be around $600 million (£429.5m) – and Songs – snapped up by Kobalt Capital for a reported $150m (£107.4m) – before deciding to withdraw from the contest in search of better value.
“We always try to be involved in all processes,” said Masuch. “We were massively surprised at the variation between us [and other buyers]. You don’t see Warner, Universal or Sony [bidding] there, it’s all finance companies and private equity companies that, realistically, draw on a lot less data and experience than the traditional music companies. So something doesn’t feel right.”
Many in the business – particularly on the publishing side – will be surprised to hear Masuch’s revelations, as BMG has always been happy to bid large on available assets.
“We were never shy,” he said. “People don’t accuse us of being defensive investors, our reputation was definitely that, if we want something, we are aggressive. So to then find out people without that deep industry knowledge are even more aggressive, you might get a bit coy in those situations.”
Instead, as the influx of private equity money threatens to distort the market, BMG will be concentrating on expanding its publishing and records revenues the hard way: by increasing sales and market share. As revealed yesterday by Music Week, the UK company – now led by new president, repertoire and marketing, Alistair Norbury – is targeting its biggest-ever week one sale for Kylie Minogue’s new album. It also has forthcoming high-profile releases from Rick Astley, The Prodigy and A Perfect Circle, while Masuch said the company would continue to target publishing catalogues by established artists.