Bertelsmann Reports Highest Profit in a Decade, CEO Rabe Talks China Strategy and Music Investment Numbers

Thomas Rabe

Bertelsmann chairman and CEO Thomas Rabe

The parent of global music company BMG has a very good year, partially on the strength of some smart investments in music.

"BMG's revenues grew by 40 percent last year... this means that we are substantially widening our share of the market -- particularly in the case of music publishing, [which] is stable and [expected] to grow slightly, [by] around two percent," said Thomas Rabe, CEO of Bertelsmann, today in Berlin. Rabe did not disclose the full-year revenues for 2015, explaining that Bertelsmann always reports revenues for its divisions but not its subsidiary companies. He added that this would change in 2016, as BMG would constitute a separate division.

Bertelsmann’s Group profit improved significantly, rising over 90 percent to €1.1 billion compared to €572 million the previous year, its highest since 2006.

In 2015, revenues from Bertelsmann’s continuing operations grew by 2.8 percent to €17.1 billion, the company's highest level since 2007. Positive currency effects and the strategic transactions of previous years were contributing factors, including the augmentation of digital business at RTL Group and Gruner + Jahr, as well as the expansion of financial services, BMG and education. Work in and around television in Germany and the Netherlands also did well for the conglomerate. Concurrently, structurally declining business were further downscaled. Bertelsmann increased its operating earnings before interest, taxes, depreciation and amortization (EBITDA) by 4.7 percent, or €111 million, to €2.49 billion this past fiscal year, its highest level since 2006.

Last year BMG acquired several labels, including metal stalwart Rise Records, pop label S-Curve Records and small French house Atmospheriques. BMG also took over the Verse Music Group, which includes some of Nina Simone's music, and the Minder Music publishing catalogs, as well as the U.S. rights to Buddy Holly's catalog. Notably, the company acquired the legendary catalog of Chess Records, through publishing company ARC. Artists signed in the year included Dave Stewart, Janet Jackson, Silbermond, Katie Melua and Emerson, Lake & Palmer.

In response to Billboard's inquiry as for the amount of Bertelsmann's music investments, Rabe says the company is working in the hundreds of millions, saying "we can grow our business organically, but also make further acquisitions wherever it makes sense."

BMG controls the rights to more than 2.5 million songs and recordings, divided 75/25 in favor of publishing copyrights. There are around 70,000 clients (individuals or companies to whom BMG pay royalties). BMG's worldwide workforce stands at 550, spread across 13 offices in 11 countries.

On China and his company's deal with Alibaba, Rabe tells Billboard that BMG is wholly avoiding the compact disc business in China, saying that the format isn't viable in the piracy-rife country. "We entered into an exclusive licensing agreement with Alibaba in 2014, which offers music rights in digital form for downloading or streaming.... the first time that we have earned money on a large scale in China outside licensing of music for advertising. We are very confident that this will continue." He added that this was the future of music, particularly for works subject to piracy. 

Rabe tells Billboard that he saw a similar development in India with Saavn, that country's Spotify analogue and a company in which BMG holds equity. Streaming was a decidedly good development for the music industry and had made a decisive contribution to stabilizing the music market and the record market in Germany, the United Kingdom and the United States.

Bertelsmann Media Group has also altered its structure, now composed of eight independent divisions, up from of five. These include RTL Group, Penguin Random House, Gruner + Jahr and BMG in the media portfolio; customer support giant Arvato and Bertelsmann Printing Group. As well, the Bertelsmann Education Group, formed last autumn, and Bertelsmann Digital Media Investments, which has a stake in millennial-focused news site Mic.