Business

BMG Revenues Grow 10% as Owner Bertelsmann Says It's 'Well Prepared' to Survive Coronavirus Crisis

BMg Nashville
Cody Heckber

BMG's new state of-the-art complex in Nashville.

Digital sources made up 56% of the label and publisher's revenues in 2019, up from 52% the year prior.

LONDON – BMG parent company Bertelsmann says it is "well prepared to emerge safely" from the current coronavirus crisis with group revenues rising to €18 billion ($20.2 billion) in 2019.

BMG contributed €600 million ($672 million) to that total, a 10% rise on the previous year when revenues totaled €545 million ($611 million at the exchange rate of one euro for $1.1206 Bertelsmann said it recorded for 2019).

The record label and publisher's operating earnings before interest, taxes, depreciation and amortization (EBITDA) were up 12.7% to €138 million ($155 million), according to Bertelsmann's year-end financial report.

BMG is the first label to announce earnings since the coronavirus outbreak shutdown large parts of the music industry.

Reflecting on the pandemic, Thomas Rabe, chairman and CEO of Bertelsmann, said the Germany-based media company had taken many measures to protect its employees' health and well-being and was well prepared financially to weather the storm.

"We are profitable, have high liquidity, a comfortable equity ratio, and ratings continue unchanged in the investment-grade category. The broad setup of our businesses makes us less susceptible to economic fluctuations and allows us to continue investing in our future without compromising the substance of our business," said Rabe in a statement.

As well as BMG, Bertelsmann's media holdings include RTL Group, Penguin Random House, magazine publisher Gruner + Jahr and service provider Arvato. Rabe said its diverse portfolio had an even greater societal relevance now that large parts of the world are on lockdown.

"We provide authoritative information and entertainment to millions of people, who now face unprecedented disruption to their personal and professional lives," said the CEO.

Breaking down BMG's year-end results, looking first at the 138 million euros in EBITDA as a percentage of revenue, the EBITDA margin now stands at 23%, up from 22.4% in the prior year when EBITDA totaled 122 million euros ($137 million).

That EBITDA margin is higher than those of the three majors, with whom BMG is increasingly in competition as the company evolves back toward becoming a major music company, a status it once held until it sold its music operation to Sony back in 2004.

Currently, BMG revenue breaks out to two-thirds music publishing and one-third for recorded music, which means its publishing company has revenue of 400 million euros (almost $450 million), while its record label operations are 200 million euros (almost $225 million).

For the latter business segment, BMG has deliberately chosen a different path, concentrating more on established artists than the riskier and less financially rewarding business of trying to break hundreds of new artists in the same year, according to BMG CEO Hartwig Masuch. That helps to ensure a stronger profit, he says, along with keeping a tight reign on the corporate cost structure.

"The corporate cost structure has to make sense," given that the growing digital segment of the business brings with it higher artist royalties, he said.

Last year, digital made up 56% of the label and publisher's total revenues, up from 52% in 2018. Within that, the catalog portion—music 18 months or older—experienced a 78% year-over-year increase.

Hit albums by Kylie Minogue, Blanco Brown, Keith Richards, Jason Aldean, Dido, The Cranberries, Kontra K and Seeed helped drive growth in BMG's recordings business, which outpaced the market's growth in several key territories.

One of those was the United Kingdom, where album sales by BMG artists were up 12% year-on-year. In the United States, BMG's music streaming business grew 62%, although it did not provide comparable figures about album sales.

BMG's publishing income also recorded organic growth in 2019, says the report.

Songwriters signed to its publishing arm include AC/DC, Mick Jagger and Keith Richards, Roger Waters, Steven Tyler, Johannes Oerding, 21 Savage, Bring Me The Horizon, Juice WRLD and Lewis Capaldi, who all made "significant contributions to revenues."

New publishing signings in 2019 included Neil Finn, Cage The Elephant and KSI, while Jagger and Richards extended their existing contracts with BMG.

Last year also saw the music company branch into artist management via a partnership with Shelter Music Group, launch its first new label imprint since being founded in 2008 (the jazz, classical and electronic focused Modern Recordings) and open an office in Hong Kong.

Breaking down its revenues by market, the U.S. contributed just over 50% of BMG's yearly sales, followed by the U.K. (16.6%), Germany (7.7%) and France (5.7%),  with Europe as a whole accounting for 40.9% and other territories 8.9%.

The company said BMG averaged 883 employees during 2019, in 19 offices located in 12 core music markets around the globe. Those employees are now all currently working remotely due to the COVID-19 pandemic, while two team members have been diagnosed with the virus, the company reports.

When the company re-started music operations back in 2008, it initially began growing through a series of acquisitions, including buying Cherry Lane, Chrysalis, Mute, Sanctuary, Bug and Broken Bow, among other publishers and labels. In its year-end report, the company said "BMG’s focus is on organic growth through the signing of additional artists and songwriters," but added, "there may also be opportunities for selective acquisitions of music catalogs." To date, the company says it has invested 1.927 billion euros in building the BMG catalog.

Elsewhere in the portfolio, BMG is expanding its presence in production music, rebranding that division under the banner BMG Production Music.

Looking toward the future, Masuch says the company has increased its engagement in South America, which he says is a priority going forward. That will include trying to sign local artists on the continent, though he adds that consumers there "have an enormous appetite for Anglo-American repertoire."

In order to ensure that BMG revenue holds steady during the global economic downturn, BMG has increased its investment in digital marketing, according to the company.

The coronavirus pandemic aside, the company said that "growing market penetration of subscription-based music streaming services offers significant opportunities to expand the recorded-music and music-publishing markets internationally."

Risks to BMG's future earnings growth mentioned in the earnings report include the cost of extending contracts with artists/authors and distribution partners and securing the recouping of advances.