Music Industry

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  • Why it matters

    Why it matters

    While other music companies struggled due to online music streaming and increasing digitization in the early 2000s, Germany-based company BMG embraced the trend, and has found considerable success in the sector as a result.

  • Facts

    Facts

    • BMG, short for Bertelsman Music Group, was founded in 2008. It is part of the media company, Bertelsman Group, a major German media, services and education company operating in around 50 countries.
    • Last week BMG announced that sales have gone up by 12 percent within a year to €416 million ($443.8 million), with profits keeping pace at €95 million ($101.4 million) in 2016.
    • The company employs around 600 staff and is number four on the list of global music market leaders, trailing Universal, Warner and Sony.
  • Audio

    Audio

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BMG CEO Hartwig Masuch
Rock'n'roll manager: Hartwig Masuch's decision to focus on the digital realm of the music industry has paid off for BMG. Source: Andreas Chudowski/laif

The cornerstone for the future of BMG was laid in 2008 in Bertelsmann’s office next to the Brandenburg Gate in central Berlin. At the time, Thomas Rabe – then Bertlesmann’s chief financial officer, today the chief executive officer – and Hartwig Masuch were brainstorming, following the sale of the company’s music sales division to Sony. For all intents and purposes, the firm’s days in the music business seemed to have come to a close. But Mr. Rabe and Mr. Masuch, both former musicians and passionate about the industry, were not about to let things go that easily.

So, together with then Bertelsmann CEO Hartwig Ostrowski, they decided to pivot away from the declining world of CD sales towards the relatively unglamorous realm of copyright and publishing rights. While the brutal effects of digitization had yet to hit the global music industry, the trio had a premonition. “BMG was the first music company to focus on digitization from the very beginning,” Mr. Masuch says reflecting on the company’s status as pioneers in the industry.

The venture proved a success. Last week was the first time BMG presented its financial results as part of the Bertelsmann’s annual press conference. Sales have shot up by 12 percent within a year to €416 million ($443.8 million), with profits keeping pace at €95 million ($101.4 million) in 2016. Meanwhile, the company now boasts some 600 employees and has shot to number four in the list of global music market leaders, trailing Universal, Warner and Sony.

“BMG was the first music company to focus on digitization from the very beginning.”

Hartwig Masuch, CEO of BMG Rights Management

Today, BMG is one of Bertelsmann’s eight business units, which also include the television subsidiary RTL, the global services company Arvato and the publishing house Gruner + Jahr. And while BMG is far from being the company’s largest division, it is undeniably its fastest growing. This is especially the case in the areas of both digitization and internationalization. In terms of age, BMG is more of a start-up. But in terms of success, it is a major player.

As the creative mind behind BMG, the 62-year-old Mr. Masuch is known for thinking differently about the music industry. Next to his desk he keeps an electric guitar plugged into an amplifier, ready to play. Hailing from Hagen, a small town in the state of North Rhine-Westphalia, the CEO previously worked as a taxi driver, in the 1970s. It’s there that he discovered the female pop star Nena, who would go on to become famous world wide for her anti-Cold-War hit, “99 Balloons”.

Aside from managing Nena, Mr. Masuch also took on the German new wave heavyweights, Extrabreit and Ina Deter. In 1991, he joined BMG Music Publishing, Bertelsmann’s music sales subsidiary, as managing director. He remained there until it was sold to Sony.

With his intimate knowledge of the music market, Mr. Masuch knows the radical changes will continue.

Music streaming is now responsible for about a third of BMG’s sales and has uncovered entirely new groups of customers.

A good example is music streaming, which is now responsible for about a third of BMG’s sales and has uncovered entirely new groups of customers. The over-40s, who for years hardly played a role in sales, appear to be rediscovering their love of music. They are buying expensive Sonos or Bose stereo systems and subscribing to streaming services to use them.

The same goes for streaming in cars. Mr. Masuch speaks in excited tones of a future music streaming button for drivers and free offers of year-long subscriptions. “The market would explode. That’s why we invested in the U.S., in an area that hasn’t even yet been looked at for streaming: country music,” he explains. In January, BMG bought the Nashville-based BBR Music Group. Cars, country music, streaming: A new triumvirate?

In person, the BMG chief is the opposite of a glitzy music manager. His staff say that the superficiality and exploitative tendency of the industry are foreign to him. Mr. Masuch would rather spend his time fighting to get artists decent pay. Musicians often end up receiving a meager ten percent of sales, which for Mr. Masuch is no longer tenable in the age of digitization, especially when production costs are significantly lower due to an enormous decrease in material product.

The times might be a changin’ – but Mr. Masuch is banking on a love of music remaining the same.

 

Catrin Bialek is a Handelsblatt correspondent based in Dusseldorf. To contact the author: bialek@handelsblatt.com
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