The Sunday Telegraph - Money & Business
‘Artists need to be smart and not sign stupid deals’
The BMG chief believes the music industry has never had it so good since the rise of streaming, writes Christopher Williams
Hartwig Masuch was destined for great things in the music business. His band was not. The Ramblers released the last of three albums in 1980 and went their separate ways, their Teutonic power pop drifting into obscurity.
However, lead singer Masuch, from Hagen, a small town in North Rhinewestphalia where the top attraction is an open-air industrial museum, stuck at it. He drove a taxi, managed artists and produced music. Still in Hagen, he discovered Nena, who went on to have a global hit with the Cold War anthem 99 Luftballoons.
Today Masuch is chief executive of BMG, the music arm of the vast German media group Bertelsmann, which is privately owned by the billionaire Mohn family. After more than four decades in the music business, these are some of the best times he can remember. Confidence and profits are rising as reliable subscription income from Spotify and others transforms the landscape.
“A lot of people 10 years ago thought that dealing with music is very complicated,” says Masuch down the line from lockdown Berlin. “Investors got burned and they would stay away. If you compare that with now, today we have a pretty attractive scenario.”
Money is pouring back in. Vivendi, owner of the biggest of the three major labels, Universal Music, has announced plans to list in Amsterdam at a valuation of at least €30bn (£26bn).
Its rival, Warner Music, went public in New York last year and has since gained more than 20pc in value. In Britain, the Hipgnosis Songs Fund founded by the music manager Merck Mercuriadis has raised more than £1bn on the stock market to fuel a buying spree in the hot market for rights to music back-catalogues.
Masuch, who does not display any of the braggadocio traditionally associated with music moguldom, won’t say so, but he saw this coming. Bertelsmann has been in the business for decades but the BMG of today is a company, built for the streaming age.
In 2008 Masuch helped offload a 50pc stake in Sony BMG (today known as Sony Music, the third of the three major labels) and then returned to
Bertelsmann to start again. The rise of streaming, he reasoned, was not just a new distribution technology, like CDS or MP3 downloads. It would fundamentally alter the economics of music by linking income to listening rather than transactions.
In turn, that would mean the lavishly funded marketing machines at the centre of traditional record labels, which sell new artists and albums, would lose potency. Instead, established artists and owners of the rights to popular back catalogues would hold sway.
“Historically the music industry has often looked like a scheme to transfer wealth from artists and shareholders to employees,” says Masuch.
“It’s no great achievement to win the signature of an inexperienced 19-year-old to a record deal when the biggest tool in your armoury is millions of dollars of someone else’s money. It’s far harder to sign a 40-year veteran of the music industry who has seen record executives come and go.”
The new BMG is designed to recognise the power shift with a focus on being a service provider for artists, and an acquirer of valuable rights. In 2010 Masuch secured the £107m takeover of the British music publisher Chrysalis, owner of rights to David Bowie’s back catalogue.
Today that deal looks like an absolute steal. The emergence of Hipgnosis, listed in 2018, has triggered rapid inflation as more investors wise up to the long, dependable returns a classic song can deliver from streaming. Round Hill, a rival fund, has introduced a new level of transparency. Now established popular repertoires are selling for 20 to 25 times their annual earnings.
Hipgnosis’s rapid expansion has begun to draw fire from some in the City and more traditional elements in the record industry who claim Mercuriadis may be overpaying. Masuch doubts it.
“The music industry owes Merck big-time since he is the one who has pushed open the door and persuaded the financial community of the huge unlocked value in music rights once separated from the messy business of running a music company,” he says.
The change in mindset demanded by streaming is not complete, Masuch claims, although he agrees that a decade of rock-bottom interest rates have helped open money managers’ minds to the possibilities.
“Historically music investments were considered risky so people wanted a private equity type return. But with a big vehicle invested in thousands of songs, the risk is lower and the perspective changes. So the rights market might be very far from overheated. There might be people who will be willing to invest at 30 times multiples.”
Masuch believes these trends will further undermine the power of the three major labels. In the glare of the public markets they are likely to come under pressure to cut their costs and focus on their catalogues, he suggests.
Yet more artists are taking back control of their own rights, and provisions of US copyright law mean many valuable catalogues are due to revert to their creators in the next few years. Masuch won’t share which classic artists he is watching most closely, but says Bertelsmann is ready to invest more.
Where it is outbid by funds such as Hipgnosis, BMG aims to benefit by acting as business partner, helping extract maximum income from streaming, licensing for television and other markets at minimum costs.
“I am convinced that as serious money floods into music these funds will be looking for reliable and efficient business partners rather than cigarsmoking moguls with ‘golden ears’,” Masuch says.
BMG, with revenues of €600m in 2019, is dwarfed by the big three, which turn over billions each. Yet Masuch has delighted in cheekily positioning it as the “fourth major” and BMG points to profit margins that lead the industry.
The approach has attracted the Rolling Stones, known as some of sharpest businessmen in music after nearly 60 years at the coalface. In 2013 Mick Jagger and Keith Richards signed a publishing deal with BMG covering their songwriting going back to 1971.
However, while wealthy old men are being further enriched by the new economics of the music business, there is concern that emerging artists cannot build a career on the fractions of pennies Spotify, Apple and others pay for each stream of a track. Artists claim their payments have been shrinking and that record labels skim too much off. In recent weeks a select committee inquiry has been grilling senior record label figures on the issue, and the tech companies are due up this week.
Masuch has little sympathy with pleas of poverty and says artists should negotiate better record deals with the future in mind.
“When you enter a business, whether it is acting or music or whatever, there’s no guarantee you can make a living out of it,” he says. “Authors might find there are only 200 people who want to read their book, actors might find there are no roles for them. If you have a million streams of your song on a service the financial output to you is a question of your contracts. And that is a question of what your priority was when you signed the contract.
“Was it the red carpet and attention for a certain amount of time? Or did I take a frugal approach and focus not on marketing but control of the process and my pricing?”
Masuch believes for new artists the best route may be to bypass the record labels. “There are some artists now who are incredibly smart and don’t sign a stupid record deal. The established music industry structure is just too expensive.”
Is there any room for rock ‘n’ roll in this new world? “The music industry is still incredibly fun,” insists Masuch, who is looking forward to the Stones’ next tour. “You just shouldn’t expect other people to pay for your fun.”
‘The industry owes Merck big-time since he persuaded the financial community of the unlocked value in rights’