KKR announced its acquisition of a catalog of songs by Ryan Tedder, including OneRepublic hits, in January. What will the investment giant buy now alongside new partner BMG? (credit: press)
“The fact is, with more and more artists in control of their rights these days, the old music industry ways are no longer an option.”
BMG boss Hartwig Masuch would like to make it clear that his company’s new industry-shaking pact with investment giant KKR – under which both sides will co-own acquired assets – has much more going for it than its spending power.
Even so, after a sustained hiatus from buying music assets, BMG has its check-book out once again… and it’s ready to write down some colossal numbers.
Sources close to the BMG/KKR alliance tell MBW that both sides (BMG via Bertelsmann; KKR via, well, KKR) have initially committed circa $500 million each to their new deal-hunting partnership, with more cash to come when that’s been spent up.
When MBW catches up with Nat Zilkha, a partner at KKR, he confirms that BMG/KKR’s initial joint spending capacity “is measured in the $1 billion-plus category”, and that beyond this, “there’s no upper limit on the capital”.
You caught that, right? “No upper limit.”
We quietly note that KKR currently has over $230 billion in assets under management.
To infinity, and beyond.
‘The big check is not enough’
BMG’s Masuch is keen to explore what to him is a more meaningful discussion than mere dollar signs and zeroes.
He argues that both financialized parties like KKR and the songwriters/artists BMG has been serving for the past 13 years are actually looking for the exact same thing in a music industry partner.
“BMG is unique in this conversation because it is in our DNA to say to songwriters, artists, and other partners, ‘Here, we found this money you are owed,'” he suggests.
“You can raise $1bn, $2bn, $3bn – as much as you like – but if artists and, increasingly financial investors, cannot trust you to play it straight and treat them and their work with respect, then all the money in the world will not be sufficient to persuade them to do business with you.”
Hartwig Masuch, BMG
“If you’re a music company and it’s not in your DNA to hand money to partners if you can avoid it, if the money gets stuck in your pipes on the way out, that could kill returns for well-capitalized partners.”
Adds Masuch: “BMG’s fairness agenda isn’t some kind of hobby, separate from our business strategy – it’s integral to it.
“You can raise $1bn, $2bn, $3bn – as much as you like – but if artists and, increasingly financial investors, cannot trust you to play it straight and treat them and their work with respect, then all the money in the world will not be sufficient to persuade them to do business with you.”
‘We have the firepower…’
A new market entrant with over a billion dollars to spend in music is obviously a big story. But there’s an even bigger headline sizzling away here: the overall size of the music rights marketplace now stretching out in front of KKR and BMG, not to mention their competitors.
This could be seen with the recent ≈$400 million sale of Bob Dylan’s song catalog (a long time Sony Publishing client) to Universal; and it could also be seen last week with the sale of Paul Simon’s song catalog (a long time Universal client) to Sony. Clearly, things are hotting up.
“In terms of quantum, BMG and KKR would clearly have the firepower to buy all of [the $1bn in rights on the market today] if we chose.”
Hartwig Masuch, BMG
Masuch tells MBW: “In terms of live deals now being marketed by lawyers and managers, our deal monitor suggests there are [music] rights with an aggregate value of around $1bn in play today. These are mainly in the sub-$50m range but include one catalog targeting more than $100m.”
He adds: “We are certainly not going to buy all of them – some of them don’t fit our investment profile and we are prepared to sit this out to find the best match. But in terms of quantum, BMG and KKR would clearly have the firepower to buy all of them if we chose.”
‘There is no shortage of repertoire’
A few weeks ago, Merck Mercuriadis, CEO of the ever-acquisitive Hipgnosis Songs Fund, told MBW that he believes there are two more years left to run in music rights acquisitions before the current “window of opportunity” closes. After that point, he suggests, it will be slim pickings at sky-high prices.
Masuch takes a less time-sensitive view of things. He forecasts there will be “no shortage of repertoire coming to the market over the next five years”, including a “huge amount of rights with pretty iconic characteristics”.
Does Masuch think we’re not far away from the storied $500m-plus price-tag for a single songwriter/artist’s catalog?
“I recently learned of one huge band who got back their masters after updating what was a life-of-copyright deal with a major record company.”
Hartwig Masuch, BMG
“Definitely, and it’s not hard to name the suspects,” he replies, adding: “I recently learned of one huge band who got back their masters after updating what was a life-of-copyright deal with a major record company.
“The [updated deal] ensured that every time they released a new album, they gained back a [reversion] on a classic album. And in January this year, they gained full control of their catalog.”
Whoever this mystery band is – Masuch gives us no other clues than saying they began releasing music in the 1980s – it sounds like a similar situation to that we saw with R.E.M in 2015, when the band recaptured its classic ‘Warner Bros‘ catalog, then moved it away from Warner via a licensing deal with Concord.
Masuch’s wider point: publishing catalogs revert/are terminated with relative frequency, and so are regularly bought and sold, but that doesn’t mean there won’t be hugely valuable master rights deals also coming to the market in the years ahead.
KKR: ‘We’re looking at an abundance of opportunity’
On the other side of the new alliance sits KKR, which has already dabbled with buying music rights, having snapped up a Ryan Tedder song catalog for around $200 million in January.
Meanwhile, KKR is an investor in multiple companies that have a connection to the music rights business – whether that be TikTok owner Bytedance, Fortnite maker Epic Games, or Gibson Guitars.
Nat Zilkha – who is Chair of Gibson – points out that KKR’s various investments in these ancillary spaces formed part of the reason the firm chose BMG, a company he says is “perfectly placed to take advantage of all these [media] trends, and music’s place within them”.
“There is also a philosophical argument as to why BMG is the perfect partner for KKR,” adds Zilkha. “From our perspective, it was critical this [deal] was done in a way that puts the artists first; a friendly solution, with a partner who advocates for artists.”
“From our perspective, it was critical this [deal] was done in a way that puts the artists first.”
Nat Zilkha, KKR
Zilkha adds that with BMG by KKR’s side, the latter company has rekindled a relationship with a music partner that it considers “family”. Yet in 2013, five years after ‘new’ BMG was founded, KKR sold its 51% holding in the music company – turning its back on a business that has since boomed as streaming has exploded worldwide.
Has KKR not found itself sitting on the sidelines of the music industry ever since, wondering what might have been?
Zilkha says: “There were many considerations as to why we sold [in 2013]; it was a great partnership for us and BMG, so we look back at it with absolutely no regrets.
“Now we’re looking forward, not backward – and we’re looking at a landscape [in music] where we think there’s an abundance of opportunity.”
BMG: Bullish on music rights
There is a less bullish stance on the KKR/BMG announcement to consider, given credence by a comparable deal struck between Warner Music Group and Providence Equity Partners (via Tempo Music Investments) in 2019.
Warner’s agreement saw Providence (and other backers) create a fund of over $1 billion with which to buy music assets that Warner would then manage and maximise.
Doesn’t this deal and BMG’s coming together with KKR both point to a future whereby large-scale music companies can’t compete in the financialized world of music M&A – and have to turn to third-party investment firms to stump up the money?
“Bertelsmann is massively increasing its firepower for music investments here.”
Hartwig Masuch, BMG
In other words, are so-called ‘major’ music companies now starting to wave the white flag in the music acquisitions market?
“No, not at all,” replies Masuch without hesitation. “Bertelsmann is massively increasing its firepower for music investments here. But we want to make sure we have a partner on our side in the financial community who actually understands the core value proposition [of BMG], and the value of treating artists respectively, fairly, and ensuring they get the right quid pro quo for a transaction.”
He adds: “This isn’t waving the white flag, it’s the opposite: Bertelsmann is stepping up its exposure to, and investment in, music by getting into a partnership that will be very consequential.
“We’re totally bullish right now for music investments.”Music Business Worldwide
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