By
Emmanuel Legrand
At
the game 'Who wants to be a millionaire in music publishing' there's
a new winner on the block and its name is BMG Rights Management.
The
Bertelsmann operation, backed by VC group KKR, announced last week that through its aggressive acquisition policy, it has grown in just
a few years from zero to over a million copyrights. They are now part
of this very exclusive club of millionaires that includes Sony/ATV +
EMI Music Publishing, Universal Music Publishing and Warner Chappell.
So
champagne for Hartwig Masuch and his team is de rigueur! Or is it?
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| BMG Rights Management CEO Hartwig Masuch |
On
the one hand, Masuch has impeccably rolled out a strategy devised
with his German shareholders alongside KKR, and has now earned the
right to be taken seriously. Its success challenges the status quo
among the majors. Time will tell if they really manage to build a
publishing house for the 21st Century.
But
it was done at a cost. There's that incredible business philosophy
(not sure the two words go together well but that'll do for now) in
music publishing that what matters is scale and volume, and that
stacking up compositions will provide huge streams of revenues. Under
a million copyrights, you're worth nada. In the capitalistic world of
music publishing, there's now an obsession with size and scale.
The
only reason why size has started to matter in music publishing was
due to the newfound interest from Wall Street and the City in what
they saw as assets delivering long term steady returns. The belief in
financial circles is that is that catalogues are worth a lot of money
because of big numbers. The fact that copyright to compositions is
awarded in most countries for 75 years post-mortem gives investors a
potential large window to recoup their investments.
But
is size all that matters? Music publishing is a strange
industry. It is a penny business, as the new market leader Marty
Bandier likes to say. But it is also a business with multiple facets.
Yes, catalogues are worth money because they deliver steady revenues.
But the bulk of revenues come from new works, new songs from new or
established songwriters.
Publishers
never disclose the breakdown in revenues between recent works and
heritage works. And also what is the share of their active works.
There is much to bet that most of works on the million-plus
catalogues are dormant (sources suggest than less than 10% of the
big catalogues are active, with 3-5% accounting for the bulk of
revenues).
There's
many reason to that: a lot of these compositions no longer fit the
times, are too old or not relevant any more (although the concept of
relevance can vary: who would have thought that mambo had any value
until Lou Bega had a worldwide hit with 'Mambo No.5'?). But there is
also a very human reason to that: the lifeblood of publishing is with
new signings, and teams prefer to spend time and energy on new
writers than dig into the vaults. And there is also the limit to the
number of compositions and songwriters that teams can work for and
with.
It
is fascinating to hear stories about how much these big publishing
units are unaware of what constitutes their catalogues. A publisher
was telling me last week of the case of an American composer whose
royalties were sent by the British rights society PRS for Music to...
Australia. There was a homonym Australian composer registered to
Australian society APRA, but the British publisher (a major company)
of the original composer had not even noticed the snafu since it was
only a minor stream of revenues, which mattered to the composer, but
was not big enough to fly over the radar of the publisher.
Where
scale makes a difference is in the capacity to sign new songwriters.
Independent publishers are squeezed out of the deals with the hot new
composers and lyricists because they cannot compete with the cheque
book. And that's why the big publishing houses tend to also be the
publishers of the latest hit-makers.
Another
publisher – who sold his company to... BMG – recently told me he
had no plans to relaunch an independent publishing company and build
it through acquisitions. The reason? “Money too expensive and
sellers unrealistic.”
The
wave of fresh VC money that fell upon music publishing has allowed
companies like Imagem or BMG to grow significantly in a just couple
of years, but has also created a rise in the value of catalogues and
has almost shut the door to other publishers who were not as
significantly capitalised (and also created a culture of selling
assets since a lot of publishers prefer now to cash in while there is
money and sell their assets).
The
growth of BMG is certainly commendable if just for financial reasons
(as is the acquisition of EMI Music Publishing by Sony/ATV), but it
happened at the expense of market diversity.
This concentration is
extremely dangerous for the music industry's eco-system. There is a
need for healthy small and mi-size music publishing companies to play
the role of incubators of talent. There is a need for multiple
sources of A&R development. And there is a need for some kind of
level playing field in terms of investments.
[Typed
while listening to a selection of Patti Smith's songs. That's one
catalogue that is ageing quite nicely.]