After weeks of negotiations, the German media group Bertelsmann in Gütersloh has signed a deal with the investment company Kohlberg Kravis Roberts & Co. L.P. (KKR) in London to invest in and grow the BMG Rights Management operation, which was only founded in Berlin nine months ago.

KKR is to take a 51% stake in the new joint venture; Bertelsmann will contribute its BMG Rights Management unit and own 49% of the JV. According to reports from the two companies, KKR is to pay €250 million ($348.2 million) for the investment. Insiders have indicated that KKR is prepared to obtain bank loans worth up €500 million ($696.5 million) as a supporting measure.

Originally Bertelsmann wanted to market the master rights of over 200 artists from the former Sony BMG joint venture as a basis for BMG activities, but the economic crisis caused some major difficulties for Bertelsmann. As a result, Bertelsmann CEO Hartmut Ostrowski plans to cut thousands of jobs and save a total of almost €1 billion ($1.4 billion) in costs in the course of this year, which is why an investment group was sought to facilitate the expansion of the BMG Rights Management operation.

According to sources, in the coming months three major US catalogs are to be acquired and BMG expects that numerous music publishers in Europe will be on the market, because they are privately owned and now have succession problems, so will probably have to sell. Speculation that BMG also plans to buy the EMI Music archive has been denied.

BMG CEO Hartwig Masuch pointed out that in addition to the catalog of rights of 200 artists, a further 100 contracts had been signed with songwriters and other rights holders. The company has signed various rights deals with acts including 2Raumwohnung, Peter Fox, Nena and Sasha as well as international artists and writers such as a-ha, Jim Beanz and Toby Gad.

Masuch said that areas of licensing outside traditional recording, such as music broadcasts, live concerts and the synchronization of radio and TV, but also advertising and film productions, play a key role. "The response of authors and performers to our service-oriented approach has been considerable," he said. BMG Rights Management has 30 employees in six European countries and plans to increase it to 100 employees, confirmed Bertelsmann.

"With access to meaningful investment capital, we expect the partnership with KKR to contribute significantly to accelerating the development of the business. We complement each other perfectly for this venture. We both want to broaden BMG's global reach faster than originally anticipated. In this way we will be able to actively participate in the expected market consolidation," said Thomas Rabe, Bertelsmann CFO and chairman of the joint venture.

"The music rights sector offers opportunities for significant growth across the globe," added Johannes Huth, European head of KKR. "BMG has proven leadership and a strong track record of organic growth. Our financial strength combined with BMG's sector expertise will create a unique platform for building up a global music rights management business."

BMG Rights Management will be integrated into the equity fund that Bertelsmann set up two years ago and the JV company will be developed from this platform. KKR's funds will invest into a new holding company of BMG Rights Management. The foundation of the new joint venture is subject to approval under applicable competition laws. The parties expect to complete the transaction within a few months.