Bertelsmann has parlayed the assets that it wrung out of the demerger with Sony BMG ‘ key European music rights, into a stab at the global music rights business, in partnership with private equity group Kohlberg Kravis Roberts.
Bertelsmann sold its share in Sony BMG in August 2008, but kept back key music rights elements. It had already sold off its music publishing arm to Vivendi for $2.1 billion back in September 2006, as part of its settlement over its support of Napster.
So from being one of the most powerful music businesses in the world, Bertelsmann has lost two of the three legs that it stood on, and is now trying to build up its rights collection.
The two will try to develop a global music rights management business to which Bertelsmann AG will contribute its BMG Rights Management music rights unit and KKR will contribute cash, and it says its global network, whatever that amounts to.
Once the deal is complete Bertelsmann will take 49% in the joint venture and KKR 51%. Bertelsmann AG’s Hartwig Masuch, currently CEO of BMG Rights Management, will continue as CEO of the new company.
The two partners say they envisage building a major music rights management business over the medium term through organic growth and acquisitions. KKR expects to contribute to BMG’s development by providing ‘substantial’ equity investments through its European private equity funds, but it hasn’t said how much.
‘KKR shares our views on future business models for the music industry. I am excited to work with such a partner. With many high-visibility contracts and the foundation of an international organization in six European countries, it has taken BMG Rights Management only nine months to position itself successfully in the market. Songwriters and performers respond very well to our service oriented approach,’ said Hartwig Masuch, CEO of BMG Rights Management and CEO of the joint venture. When BMG Rights Management started its business in October 2008, its rights catalog consisted of about 200 artists; since then, another 100 contracts with songwriters and other rights owners have been signed.
‘With access to meaningful investment capital, we expect the partnership with KKR to contribute significantly to accelerating the development of the business,’ said Thomas Rabe, Bertelsmann CFO and Chairman of the joint venture.
Bertelsmann sees music industry licensing as a growth business, and says it will use it as a stepping stone into the rights businesses for broadcast and live performances as well as the existing synchronization of broadcasting, commercial and movie productions. The parties expect to complete the transaction within a few months.