Bertelsmann Posts Revenue Gains, CEO Talks BMG's Alibaba Deal: 'You Can't Make Money With CDs in China'

Bertelsmann chairman and CEO Thomas Rabe

The German media group Bertelsmann increased revenues and its operating income to the highest levels in seven years. Revenues from continuing operations grew by 3.1 percent, to €16.7 billion in 2014 (previous year: €16.2 billion). Key drivers of that growth were the merger of the Penguin and Random House trade book publishing groups, the full acquisition of music rights company BMG, and the expansion of financial and e-commerce services at Arvato. The figures were reported today by Bertelsmann in Berlin.

Thomas Rabe, chairman and CEO of Bertelsmann, tells Billboard that a total of more than one billion euros had been infused into the company since its business was established in 2008. He went on to say that BMG had grown by more than 20 percent last year, with market share expanding organically by a very strong double-digit rate. BMG had achieved an operating margin of 25 percent on revenues of over €300 million. Said Rabe: "We still see further upside. This is also due to the fact that the business which we have acquired has not yet been fully integrated."

BMG Signs Digital Distribution Deal With China's Alibaba

BMG currently represents more than 70,000 musicians and songwriters, manages over two-and-a-half million song rights and is directly represented in ten countries. It was the most successful music publisher in Germany in 2014, receiving 53 Grammy nominations.

Rabe reported that BMG grew both organically and through the targeted acquisition of catalogs and companies, including the music publisher Talpa Music in the Netherlands, the labels Vagrant Records in the US and Infectious Music in the UK and the Skint/Loaded, Hal David and Montana music-rights catalogs, as well as the marketing specialist Union Square Music. BMG signed new contracts with well-known artists and bands, including the Beatsteaks, Kraftklub, Casper and BossHoss in Germany; Dave Stewart, The Strokes, The Smashing Pumpkins and Faith Evans in the US; and Simply Red, Simple Minds, Sigma, M.I.A. and the composer Wayne Hector in the UK. In Germany, BMG ended the year as the country's most successful music publisher, with a cumulative 18 percent share of the singles charts. The company's artists and writers won numerous Grammy and Echo Awards. At the beginning of 2014, BMG opened an office in Beijing.

"You cannot make money with physical music, i.e. CDs, in China and in many other countries," Rabe tells Billboard, on news of BMG's partnership with Alibaba. "We have never done that. However, thanks to platforms such as Alibaba, Tencent and others that are entering music streaming business, we now have an opportunity for the first time of monetizing our music rights in this market via distribution and license contracts and this is precisely what we will be doing over the next few years with the contract that BMG has signed with Alibaba."

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Bertelsmann is making another investment in its strategic growth business of education. The international media, services, and education company is significantly increasing its direct shareholding in Synergis Education, a university services provider in the United States, in a new round of financing. Since 2012, Bertelsmann has invested in Synergis Education several times –- first via the University Ventures Fund I initiated by Bertelsmann and later directly. The parties have agreed not to disclose the size of the funding round. Rabe: "We will expand our education business into a third pillar of income for Bertelsmann alongside media and services."

During the reporting period, the Bertelsmann Digital Media Investments (BDMI) and Bertelsmann Asia Investments (BAI) funds in China, Bertelsmann India Investments (BII) and the Corporate Center in Brazil expanded their investment portfolios to a total of  92 investments. BAI made new investments in 11 companies. New investments in India included online marketplaces for furniture and real estate. In Brazil, Bertelsmann invested in an education fund focused on technology. BDMI managed a successful exit with the sale of the multichannel network StyleHaul to RTL Group.

During the past fiscal year, Bertelsmann improved its operating EBITDA by 2.7 percent, to €2.37 billion, also the highest level since 2007 (previous year: €2.31 billion). In particular, the result reflects a record performance by Mediengruppe RTL Deutschland, a strong list of bestsellers at Penguin Random House in the U.S. and U.K., and growth in the music rights business. The EBITDA margin was again high at 14.2 percent (previous year: 14.3 percent).

Group profit of €573 million was below the prior year's level of €885 million. This was the result of downscaling the print and direct-marketing businesses, expenditures on profit-improvement measures, a value adjustment to the Hungarian television business, and the absence of special items which had boosted group profit the previous fiscal year. 

At the end of last year, the group had 112,037 employees (previous year: 111,099) worldwide.