European media giant Bertelsmann, facing setbacks, wants to grow music unit BMG through a merger with a rival or a “breakout investment”.
That’s according to a report from The Financial Times on Tuesday (March 26), citing an interview with Bertelsmann CEO Thomas Rabe.
“BMG could potentially be an opportunity for a breakout investment and joining forces with a competitor,” Rabe said.
“If the opportunity arose to significantly grow BMG by joining forces with another music company, we would consider it.”
BMG, whose roster features artists like Kylie Minogue and Rita Ora, is described by the FT as “the world’s fourth-largest music label,” but that it “lags far behind” the three majors, Universal Music Group, Sony Music and Warner Music Group.
While BMG’s revenue growth is positive, rising 4.6% YoY to EUR €905 million (USD $979m) in 2023, its operating EBITDA remained flat at €194 million ($210m) compared to 2022.
The company’s EBITDA margin also dipped to 21.4% from 22.5% in 2022.
Rabe, who has led the privately owned firm since 2012, emphasized a focus on “big themes” for future growth.
The executive also believes the change in management could be the right time for a “bigger step” to scale up BMG.
“If the opportunity arose to significantly grow BMG by joining forces with another music company, we would consider it.”
Thomas Rabe, Bertelsmann, cited in FT interview
In response to investors’ cooling interest in music rights, Rabe told the FT that “music investments go through cycles.”
He added: “We’ve seen a number of financial institutional investors who put a lot of money into music rights and didn’t make returns because a) they didn’t know the business particularly well and b) they overpaid. But we are a long-term investor.”
“We make a decent three times our cost of capital in music,” Rabe also said, stressing that there could be significant economies of scale from a merger or acquisition of a competitor.Music Business Worldwide