Thomas Coesfeld’s first big move as BMG boss: A major distribution shake-up

Just two months after taking charge of BMG as its worldwide CEO, Thomas Coesfeld’s first major move as the head of the music company is nearly upon us.

Two well-placed industry sources have indicated to MBW that BMG’s seven-year recorded music distribution relationship with Warner Music Group / ADA is coming to an end.

Subsequently, we’re told, BMG is taking its digital/streaming distribution business in-house.

Coesfeld and Warner Music Group boss, Robert Kyncl, are understood to have held talks over the possibility of BMG and WMG ‘re-upping’ their global deal earlier this year.

However, MBW is told that the duo ultimately agreed the best path forward for their respective companies would be without one another.

(A source close to Warner said of the exit of BMG from ADA’s client list: “It’s clear Robert sees this as a step that will help focus WMG’s resources, build new partnerships at ADA, and grow overall margins – just like Thomas wants for BMG. Plus [BMG controlling its own digital distribution] was always part of the long-term plan. This is the right outcome.”)

MBW understands that BMG and ADA’s partnership for digital distribution will expire towards the end of this year, and its contract won’t be renewed.

Taking streaming distribution in-house promises to improve BMG’s margins in the most lucrative area of the recorded music industry, while reducing the company’s reliance on any partnership with a ‘Big Three’ major music company.

But there’s an additional element to consider here: BMG and ADA’s contract for physical distribution, we’re told, will expire in 2024, and again won’t be renewed.

Who might pick it up?

One destination that may make sense for BMG would be Universal Music Group and its global independent distribution and services division, Virgin Music Group (VMG) – though rivals, particularly Sony‘s The Orchard, may also be in the running.

JT Myers and Nat Pastor, founders of mtheory, were named co-CEOs of Virgin Music Group last year.

During its seven-year relationship with ADA to date, BMG’s annual recorded music revenues have tripled.

Throughout this tenure, ADA has been responsible for distributing virtually all of BMG’s recorded music, which generated EUR €348 million ($366m) in revenue in 2022, according to the Bertelsmann firm’s internal announcements (see below).

Update: A source within Warner Music Group tells MBW that, while the company has distributed the vast majority of BMG releases in recent years, WMG expects the impact to its annual revenues of BMG’s departure from ADA to be “significantly smaller” than the €348 million figure cited in BMG’s 2022 figures.

That €348 million figure was up 38% YoY, and represented approximately 40% of BMG’s total revenues in 2022. (BMG also runs a global music publishing company that posts nine-figure annual revenues.)

Formerly CFO of BMG, Thomas Coesfeld took over the company’s top job on July 1. He succeeded Hartwig Masuch, who had run BMG – as we know the company today – since it was founded 15 years ago.

Coesfeld is rolling out an updated strategy for BMG, with a whirlwind round of presentations to senior executives in London, Nashville, New York, Berlin and Los Angeles undertaken in recent weeks.

One attendee said: “The biggest takeaway was that the music business is getting tougher, market growth is slowing, and Thomas is determined that BMG be ahead of the game.”

BMG has been asked for comment on today’s story.

BMG’s annual turnover makes it one of the largest independently-owned distribution clients in music today.

BMG’s entire business – including recorded music and music publishing – generated EUR €414 million (USD $447m) in the six months to end of June this year.

That was up 11.5% YoY, versus the EUR €371 million that the music company generated in the equivalent prior-year period.

BMG’s profit also grew significantly this year.

In H1 2023, BMG’s operating EBITDA hit €90 million ($97m), up 22.6% YoY.Music Business Worldwide