As BMG announced its full numbers for 2023 and gave more detail on the continuing strategic repositioning of the business, the CEO of parent company Bertelsmann has told the Financial Times that BMG is “potentially” open to “joining forces with a competitor”.
The figures released yesterday show that BMG’s revenues for last year were €905 million, up from €866m in 2022. While that’s only a 4.6% increase year-on-year, it represents a full 50% increase in revenue since 2020 when BMG turned over €602 million.
Over the same period, BMG has continued to make significant investments in rights acquisitions, spending an estimated €900 million to €1000 million over the same period, according to CMU analysis of data from previous Bertelsmann annual reports. The 2023 numbers, says the most recent Bertelsmann report, “were positively impacted by, among other things, high investments in catalogue acquisitions”.
BMG’s figures are released each year as part of parent Bertelsmann’s annual report. As a privately owned company, Bertelsmann is not required to publish the detailed numbers made available by publicly listed companies, but still releases a relatively detailed annual report each year.
This is because, despite being privately owned, the company says that it is “capital markets orientated”, meaning that a lot of the deals it does involve private equity partners. This was the case for BMG, which - in its current form - was established in 2009 after Bertelsmann sold its stake in Sony BMG to Sony Music, before teaming up with private equity investors KKR to form a joint venture, with KKR taking a 51% stake in the company. It exited in 2013 when Bertelsmann took full ownership of BMG.
In an email to staff seen by CMU, the CEO of BMG, Thomas Coesfeld, said that “against the backdrop of an exceptional 2022, we have delivered a solid performance”. 2022 saw the company deliver a significant leap in revenues which increased 36.8% from 2021’s €633 million.
Coesfeld’s email also highlighted BMG’s current transitional phase, which he says is “the most fundamental shift in strategy and structure in the company’s history”.
As previously reported, BMG pulled its catalogue from its distribution deal with Warner Music’s ADA, and has established its own direct deals with Spotify and Apple, and recently signed a new physical distribution deal with Universal Music. This “upgraded distribution”, says Coesfeld, is a “strengthening” of the company’s strategy to “offer the scope and tools of a major and the heart and dedication of an indie”.
Earlier this year BMG announced details of a technology partnership with cloud computing company Rackspace that leverages Google Cloud’s “advanced AI and big data capabilities” to enable BMG to process royalty payment ten times faster and track music 50% faster. At the time, Maxime Rousson, BMG’s Cloud Architect, said “we've seen a huge increase in data harmonisation, analysis and processing velocity”.
Coesfeld went on to highlight BMG’s continuing strategy of “local where necessary, global where possible”, saying “we have set the organisation up for growth by empowering local repertoire leads alongside dedicated global marketing, sales and catalogue functions in a brand-new structure”.
What was noteworthy about yesterday’s announcement - and the email sent to staff - was the rapid pace of the changes Coesfeld is pushing through to transform the BMG business, having only been in the job since 1 Jul 2023.
BMG’s continuing commitment to the music rights market was also highlighted, with Coesfeld saying that the company has “confirmed plans for substantial investment in music rights, backed by an upgraded and rigorous investment model”. That “investment model” saw BMG team up once again with private equity investment partner KKR in 2021.
When BMG initially joined forces with KKR in 2009 the partnership gave BMG access to a significant injection of capital to drive a rapid series of acquisitions. By the end of 2014 - and with BMG by that point 100% owned by Bertelsmann - the company held “2.5 million music rights, including 600,000 master rights, making it number four worldwide”.
Since 2015, BMG has invested €1600 million in acquisitions, with more than half of that - €847 million - in 2021, 2022 and 2023, and €599 million alone in the two years 2022 - 2023.
Speaking to the Financial Times yesterday after announcing the group’s results, Bertelsmann CEO Thomas Rabe said that the success of BMG could be “an opportunity for a breakout investment and joining forces with a competitor” and that the time might be right for a “bigger step”.
However, the options for that “bigger step” would almost certainly be limited as it’s highly unlikely that regulators would allow BMG to join forces with Universal Music or Sony Music. Out of the majors, that leaves only Warner Music, which recently expressed interest in buying French artist and label services giant Believe.
As CMU has previously reported, that deal may not be a cut and dried prospect, with potential regulatory barriers to Warner gobbling up one of the last significant independent music companies of scale in Europe. BMG has a significant share of the European market: in 2023 the company generated 10.3% of its revenues in Germany, 7% in France, 11.1% in other European countries - for a total of 28.4%, or around €256 million - and a further 12.8% in the UK.
On that basis, if regulators might be iffy about a Warner Music takeover of Believe, it would seem likely the same obstacles would come up if Warner wanted to swallow, or even just partner with, BMG - and even more so if that were to happen after a theoretical acquisition of Believe.
This leaves Believe itself as a possible “big step” partner. On many levels it would make a huge amount of sense for Europe’s two largest independent music companies to join forces.
Both companies are roughly the same age, both have significant shares in key country-level markets across the EU, and both have made significant investments and strategic moves to use technology and business process optimisation to strengthen their “global local” strategies, with Believe’s “Central Platform” being a core part of its strategy.
Would a BMG x Believe deal be more likely to pass regulatory approval? Potentially. Would the optics of a deal between two European independent music success stories have more appeal than a US-led acquisition or one or both? Almost certainly.
That said, with the clock ticking on Warner’s deadline to submit a binding, unconditional and fully funded offer for Believe, it seems unlikely that - at this point - BMG would be able to make a rival offer for the company. However, if Believe founder and CEO Denis Ladegaillerie is successful in his bid to take the company private as part of his consortium with EQT and TCV, there may be significant strategic and commercial sense in a BMG x Believe merger further down the line.
