“The fact is that these days more and more artists are in control of their rights and the old ways of the music industry are no longer an option.”
BMG boss Hartwig Masuch wants to make it clear that his company’s new industry-shaking pact with the investment giant KKR, in which both sides have jointly acquired assets, has much more to offer than its purchasing power.
Still, after a prolonged hiatus from buying music assets, BMG has got its checkbook out … and is ready to write down some colossal numbers.
Sources close to the BMG / KKR alliance report to MBW that both sides (BMG via Bertelsmann; KKR via KKR) initially each provided around $ 500 million for their new deal-hunting partnership.
When MBW catches up with Nat Zilkha, a partner at KKR, he confirms that BMG / KKR’s initial joint issuing capacity “is measured in the $ 1 billion category” and beyond that “there is no capital cap”.
You got that right? “No upper limit.”
We quietly state that KKR currently has over $ 230 billion in assets under management.
To infinity and beyond.
“The big check is not enough”
BMG’s Masuch wants to find out what is a more meaningful discussion for him than mere dollar signs and zeros.
He argues that both funded parties like KKR and the songwriters / artists that BMG has worked for for 13 years are actually looking for exactly the same thing in a music industry partner.
“BMG is unique in this conversation because it’s in our DNA to tell songwriters, artists and other partners, ‘This is where we found the money you owe,” he suggests.
“You can raise $ 1 billion, $ 2 billion, $ 3 billion – all you want – but if artists and increasingly financial investors can’t trust you to play it right out and treat them and their work with respect, then all the money in the world will not be enough to convince them to do business with you. “
Hartwig Masuch, BMG
“If you’re a music company and it’s not in your DNA to give money to partners, if you can avoid having the money in your pipes on the way out, it could hurt returns for well-capitalized partners.”
Masuch adds: “The BMG fairness agenda is not a hobby that is separate from our business strategy – it is an integral part of it.
“You can raise $ 1 billion, $ 2 billion, $ 3 billion – as much as you like – but if artists and increasingly financial investors can’t trust you to play it right away and treat them and their work with respect, then all the money in the world will not be enough to convince them to do business with you. “
“We have the firepower …”
Obviously, a new entrant with over a billion dollars in music is a big story. But an even bigger headline sizzles here: The overall size of the music rights market now stretches ahead of KKR and BMG, not to mention their competitors.
This was evident in the recent $ 400 million sale of Bob Dylan’s song catalog (a long-time Sony Publishing customer) to Universal. and it was also seen last week with the sale of Paul Simon’s song catalog (a long-time Universal customer) to Sony. Obviously it’s going to be hot.
“In terms of quanta, BMG and KKR would clearly have the firepower to buy anything [the $1bn in rights on the market today] when we made up our minds. “
Hartwig Masuch, BMG
Masuch told MBW: “With regard to live deals that are currently being marketed by lawyers and managers, our deal monitor suggests that there are [music] Rights with a total value of around $ 1 billion are in play today. These are mostly in the under $ 50 million range, but include a catalog with a target of more than $ 100 million. “
He adds, “We are certainly not going to buy all of them – some do not fit our investment profile and we are willing to take this on hold in order to find the best match. But in terms of Quantum, BMG and KKR would clearly have the firepower to buy them all if we chose to. “
“There is no shortage of repertoire”
A few weeks ago, Merck Mercuriadis, CEO of the increasingly acquisitive Hipgnosis Songs Fund, told MBW that he believes there are two years left to acquire music rights before the current “window of opportunity” closes. After that point, he suggests, there will be slim choices at sky-high prices.
Masuch sees things as less time-critical. He predicts that “there will be no shortage of repertoire in the next five years,” including a “large number of rights with fairly iconic features”.
Does Masuch think we’re not far from the over $ 500 million price tag for a single songwriter / artist catalog?
“I recently found out about a great band that got their masters back after updating a copyright life contract with a major record company.”
Hartwig Masuch, BMG
“Definitely, and it’s not difficult to identify the suspects,” he replies, adding, “I recently learned of a great band that got their masters back after they signed a lifetime copyright deal with a major record company had updated.
“The [updated deal] made sure they got one back every time they released a new album [reversion] on a classic album. And in January of this year, they took full control of their catalog. “
Whoever this mysterious band is – Masuch gives us no clue other than to say that they started releasing music in the 1980s – it sounds like a similar situation to REM in 2015 when the band started their classic ‘Warner Bros’ catalog resumed has removed it from Warner via a licensing agreement with Concord.
Masuch’s broader point: The publication of catalogs is reversed / terminated relatively often and therefore regularly bought and sold. However, this does not mean that extremely valuable master rights offerings will not hit the market in the years to come.
KKR: “We see an abundance of possibilities.”
On the other side of the new alliance is KKR, which has already been busy buying music rights and bought a Ryan Tedder song catalog for around $ 200 million in January.
KKR is now an investor in several companies that have a connection to the music legal business – be it TikTok owner Bytedance, Fortnite manufacturer Epic Games or Gibson Guitars.
Gibson Chairman Nat Zilkha points out that KKR’s various investments in these ancillary rooms were part of the reason the company chose BMG. A company that he says is “perfectly positioned to take advantage of all of these benefits [media] Trends and the place of music in them ”.
“There is also a philosophical argument for why BMG is the perfect partner for KKR,” adds Zilkha. “From our point of view, this was crucial [deal] was done in a way that puts the artist first; A friendly solution with a partner who advocates for artists. “
“From our point of view, this was crucial [deal] was made in such a way that the artists come first. “
Nat Zilkha, KKR
Zilkha adds that with BMG on the side of KKR, the latter has re-established a relationship with a music partner it considers “family”. But in 2013, five years after founding ‘new’ BMG, KKR sold its 51% stake in the music company and turned its back on a business that has been booming ever since, as streaming exploded worldwide.
Hasn’t KKR been on the edge of the music industry since then, wondering what could have been?
Zilkha says, “There was a lot of thought as to why we sold [in 2013];; It was a great partnership for us and BMG, so we look back on it without regrets.
“Now we’re looking ahead, not backwards – and we’re looking at a landscape [in music] where we think there is an abundance of possibilities. “
BMG: Bullish on music rights
A less optimistic stance needs to be taken into account regarding the KKR / BMG announcement, as a comparable deal between Warner Music Group and Providence Equity Partners (via Tempo Music Investments) in 2019 looks credible.
Warner’s agreement saw Providence (and other backers) create a fund of over $ 1 billion to buy music assets that Warner would then manage and maximize.
Doesn’t this deal and the collaboration between BMG and KKR both indicate a future where big music companies can’t compete in the funded world of M&A music – and have to turn to third party investment firms to raise the money?
“Bertelsmann is massively increasing its firepower for music investments here.”
Hartwig Masuch, BMG
In other words, are so-called “big” music companies starting to wave the white flag in the music acquisition market?
“No, not at all,” answers Masuch without hesitation. “Bertelsmann is massively increasing its firepower for music investments. However, we want to make sure we have a partner on our side in the financial world who actually understands the core value proposition [of BMG]and the value of treating artists fairly and ensuring they get the right consideration for a transaction. “
He adds: “This is not waving the white flag, but the opposite: Bertelsmann is increasing its profile and investment in music by entering into a partnership that will have very serious consequences.
“We’re totally optimistic about investing in music right now.”Music business worldwide