BMG and KKR want to buy music rights together

The music rights trade is flourishing. Now the Bertelsmann music division and the financially strong holding company KKR are joining forces. It’s not the first time they have worked together.

Mick Fleetwood's shares in many of Fleetwood Mac's recordings are owned by BMG.

“We were approached by three big players from the financial world, whether we wanted to participate as partners in acquisitions,” BMG boss Hartwig Masuch had told FAZ in January about the booming trade in music rights and made no secret of the fact that the Bertelsmann Music Division is very interested in this option.

Almost two months later, the interest turned into an alliance with the financial investor KKR. As the companies announced on Wednesday, BMG and the holding company want to “join forces in order to carry out individual transactions for the acquisition of music rights”. The expertise in catalog and rights management on the part of BMG and the financial resources of KKR made “transactions of all sizes” possible. According to the announcement, the partners have an eye on author rights as well as rights to music recordings as well as others such as producer rights and the associated royalty shares.

Attack on Hipgnosis and Co

“Together with KKR, we are ideally positioned to make attractive offers to rights owners,” Bertelsmann boss Thomas Rabe was quoted as saying. The alliance now offers “rights holders a financially strong, financially sustainable home for their music assets and the certainty that their songs and recordings will be managed professionally and respectfully,” said Hartwig Masuch on Wednesday.

For some time now, a lot of money has been paid for author rights to renowned catalogs. In addition to Bob Dylan, stars like Shakira and Neil Young have recently sold parts of their rights in this field. Universal Music is said to have paid up to $ 400 million for the author and publisher’s shares in more than 600 Dylan songs, which is said to be more than 25 times the royalties expected in the year from the use of the works. The Hipgnosis fund, which is listed on the London Stock Exchange, and the American publisher Primary Wave, supported by Blackrock, are particularly keen to buy. The former won the Shakira and Neil Young catalogs.

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The deal between the Iconic Artists Group of music manager Irving Azoff and the Beach Boys recently underlined again that other rights besides text and compositions are also attracting interest. Azoff’s group had secured a majority stake in a rights package in mid-February, which includes music recordings, compositions and the band’s trademark rights. KKR and BMG have also become active lately: While the financial investor has acquired part of the rights (author’s and recordings) from One Republic frontman Ryan Tedder, BMG Mick Fleetwood’s shares in many of the recordings by the band Fleetwood Mac.

BMG and KKR know each other very well

The attraction for buyers and with a view to the achievable prices also for artists interested in a sale is obvious: only yesterday the umbrella association of the label side, the “International Federation of the Phonographic Industry” (IFPI) announced that the global market for Music recordings also grew significantly in 2020. With a total volume of $ 21.6 billion, it is back at the level it was at the beginning of the 2000s, before falling sales of phonograms and piracy plunged the music industry into crisis.

The growth driver has been music streaming for years and even if the growth rates in some established markets are slowing down slightly, the industry still sees a lot of potential in Latin America or Africa, for example. There are also various other new, especially digital channels for marketing music. For example, Universal Music recently announced an app for children together with Lego.

“If the rights system is not significantly distorted, high prices for music catalogs should pay off,” said BMG boss Masuch in January with a decidedly confident view. He already has a lot of experience in acquisitions – as does KKR. From 2009 to 2013, the investor held 51 percent of the recently founded Bertelsmann music division and played a key role in its development. Today BMG is the fourth largest music company in the world after Universal, Sony and Warner Music with a focus on the publishing sector, which generates more than half of the total turnover.

In the communication, both companies point out that many of the more than 100 BMG acquisitions from 2009 to 2017 were made during the period of the partnership with KKR. With the new alliance, however, there is now “neither a transfer or sale of shares in BMG nor the establishment of a joint venture”. Nonetheless, the partners are ambitious, seeing themselves with their cooperation as “the leading acquirer of music rights” in the future.