Last week, BMG announced revenues were up 12.2% in 2016 to €416 million (£355m). On Monday, CEO Hartwig Masuch told Music Week his company was ready to take on the majors – at both records and publishing. And on Wednesday, the Bertelsmann-owned unit became the first company to be nominated in both Publisher and Record Company categories at the Music Week Awards.
With so much going on in the world of BMG, Music Week collared straight-talking CEO Hartwig Masuch for a chat about what’s next for the company…
You must be pleased with the financial results…
I’m very happy. It’s good to work out of a long restructuring process, which took eight years, to get back to a completely defendable, profitable, good business position.
Your EBITDA margin was 22.8%, much higher than most music companies. How have you managed that?
When we looked at the business in 2008, we thought cost positioning would be a major competitive element. With the world going forward being digital, there’s different cost allocations and different demands on how the digital dividend is distributed. If you want to be competitive, you have to have low cost structure, because artists will require a higher share of digital income. It’s a boring discussion, but it’s very hard to defend working on the traditional royalty rate without the complexity of the past.
Is that why other companies have lower margins, because the conversation was too boring to have?
(Laughs) It’s not boring. We see a lot of restructuring going on. Whatever industry you’re in, the later you are to an industry transition, the bigger your problems are. Look at IBM! The longer you ignore things, the more problematic your position becomes. It’s hard to change mentalities but if you maintain a mindset for longer then necessary, your problem will be bigger.
Your increase in revenues outperformed the market. Which side of the business did the increase come from?
It comes from both, but recording took a bigger share in the last year. We’ve really made some significant progress on where we want to be in our recording [business]. That’s definitely the more dynamic part now.
BMG has been highly acquisitive since it returned to the music business. Are there fewer purchases to be made now?
If you want to do what we did, you need to buy to accelerate the process to achieve a certain size. If you don’t want to start with a big platform without repertoire and incur massive negative EBITDA, you have to buy. Right now, we are very comfortable with the platform we have, we can do whatever is necessary globally on publishing and more and more on the recorded side. We don’t have to acquire to fill gaps in our infrastructure, right now we can very confidently present the infrastructure: if you need a partner to grow your business, we’re a good partner, we can do exactly what the other guys can do. We can deliver No.1 albums globally with the infrastructure we already have, we’ve done it a couple of times now so I feel very comfortable. Right now anything that we define as a success story – multiple territory No.1 albums or breaking new artists – we can do, we’ve proved we can do it and we can do it more than once a year.
You expanded to Brazil and Australia – how important is it to be a global company?
Well, we look at it and say, How much complexity globally do you really need? We were a company that had offices in 45 countries before we sold everything, but the problem was, 32 countries added 5% of sales. So why the hell do you want to be in those 32 countries, instead of partnering and focusing those resources on those areas where you really control your destiny? There’s an optimised presence globally and it’s not every country that the UN represents.
Are there more acquisitions to be made on the recorded music side?
The interesting part is that we will see many more artist-owned catalogues coming to market. There’s much more owned by artists than people might think. If you drill deeper, big iconic repertoire is often owned by the guys who created it because, over the years, they were able to claw back rights. The artist who has a career for two albums never gets a chance to get his repertoire back but, for the guys who are in there for 20 years, every renewal of the contract brings them nearer to ownership. A lot of stuff that’s interesting to us will be available, so we’ll definitely see more acquisitions on the recorded side.
Your recorded music policy seems to be focused on signing established acts…
We always sign multiple new acts in parallel to established acts. We look at what’s a reasonable ratio; what can we digest and where can we commit to a partnership and not get nervous. We have The Sherlocks and Cabbage in the UK, Francesco Gabbani in Italy who’s a No.1 artist and didn’t even have a deal 18 months ago, Leela James in America… We spend a lot of money and resources on new artists but weighted less than our main competitors. I don’t want to be forced to pressure things, just let it grow. I have a very comfortable ratio, supported on the recorded side by more predictable, more mature repertoire. We want to be part of the catalogue of the future but that’s the not main business for us. We’re not focused on having the highest market share of contemporary new artists or the Hot 100 because that is representing very new repertoire. It’s all great, but the balance has to be reasonable.
So you weren’t bothered by the breakthrough acts crisis?
I’m completely not worried about it. Of course, I’m excited if we come across an artist where we think, This is part of the future. But if there are three months when nothing excites us, we won’t go out there, find a good-looking girl, put her in touch with a Swedish songwriter and try to create the next sensation. I can live with the fact that we don’t do it at that moment. We only need something new [if it] has relevance to our team and the public. We’re not incentivised to do something just for the sake of doing it.
Are there more big name signings to come?
Yes. Our presence in Nashville has now filled a blind spot in North America. You see how many American superstars are gearing towards Nashville and their production facilities, there’s a big market catered out of there, so we think there will be some significant opportunities in the next couple of months. A consistently achieving global company is highly attractive to a lot of artists based in Nashville, because their ex-US sales are often astonishingly low. But if you talk to Spotify about how relevant their country playlists are outside of the US, you suddenly get a clear indicator. You follow C2C in the UK and they don’t have to do much advertising to sell out the O2 with country artists. There are some really interesting areas out there. If you have a global view you can have a much better presence than competing with the local resources. From the UK perspective, being a very important deliverer of exciting global repertoire becomes more of an issue. If the local capacities prevent you being as relevant as you should be, your global presence will shrink. Where it’s not an issue [you have] Muse, Alt-J, Ed Sheeran – there’s a big appreciation for British repertoire, but you should not be bogged down by certain capacity issues or local priorities, whether in continental Europe or the US. That’s the area where we’ll try to make an impression on people, we will make sure these constraints are not in the way of our artists. A lot of people who are now superstars had to go the long way – U2 slept on people’s floors on tour. You have to be able to support a more long-term perspective without spending enormous money and killing the whole project. The specialty of UK repertoire is taking a lot more risks than other countries. So we need more time. You can’t expect the whole of America to wake up to a completely innovative act overnight.
So can you take on the majors now?
In terms of the criteria of what it means to be on a par with them, yes. We can have multiple No.1s globally on the recorded side, we have market share on hit driven repertoire on the publishing side… I’m trying to find something we can’t do! We’re not involved in physical distribution with our own teams but there are enough great distribution and sales platforms we can piggyback on.
Where will you take the company next?
In the big picture, we’re still underweighted on recorded music, so we want to build up the recorded side. Have more resources, have a more globally effective business, because I believe in global representation of repertoire. When you get involved on the local side you have to have a global view. It’s very important to make sure that everybody sees we can execute globally so there are still some areas where we need more resources. If I look at where we want to be, we want a 50/50 weighting between publishing and recorded – and to add a substantial audio-visual business. If you look at established artists, the A/V side is a win-win situation. You can sell your marketing costs to broadcasters and YouTube, it’s very high value. Look at how much people used to pay in the MTV days to have a visual presence. Now we have the chance, through YouTube and multi-channel broadcasters, to turn that exact same approach into a profit centre, which makes it much easier for artists.