Bertelsmann would consider deal to expand music business BMG, says chief

German media giant Bertelsmann is interested in doing a deal to dramatically scale up its music business BMG, whose artists include Kylie Minogue and Rita Ora, following a series of setbacks that curbed the group’s previous expansion efforts.

“BMG could potentially be an opportunity for a breakout investment and joining forces with a competitor,” Bertelsmann chief executive Thomas Rabe told the Financial Times. “If the opportunity arose to significantly grow BMG by joining forces with another music company, we would consider it.” 

Rabe’s remarks come as Bertelsmann, Europe’s largest media group, assesses its future after several upsets scuppered its attempts to expand its core broadcasting and publishing businesses, which include the publisher Penguin Random House and broadcaster RTL. 

Competition regulators in Europe and the US stopped four big deals planned by the company in the past 18 months and Bertelsmann has subsequently moved to sell some of the businesses involved, including RTL’s Dutch arm and the services company Majorel.

The disposals flattered 2023’s results but have raised questions over future sources of growth. Annual revenues were stable at €20.2bn while adjusted operating earnings before interest, taxes, depreciation and amortisation fell slightly to €3.1bn. The company said it expected a “sharp decline” in revenue and earnings this year.

Rabe said that although Bertelsmann would continue to incrementally invest in its European and US media businesses, the “big themes” he was interested in over the next few years included large capital allocations in healthcare, education, music and in developing economies, particularly Brazil, India and Mexico.

The marathon-running 58-year-old, who has headed the privately owned company since 2012, is due to step down at the end of 2026. While credited with transforming Bertelsmann during his tenure from a sleepy European publishing business into a transatlantic conglomerate, critics say Rabe is at risk of mis-steps as he seeks to quickly craft a strategic plan B.

BMG is the world’s fourth-largest music label — but lags far behind the top three “majors”, Universal, Sony and Warner. The company earned revenues of €905mn in 2023, up 4.5 per cent year on year. Management of the division was taken over by Thomas Coesfeld, the 33-year-old scion of Bertelsmann’s owners, the Mohn family, last year.

Rabe said it might be an opportune moment for a “bigger step” to scale up BMG, which has already sought to expand its catalogue through a partnership with KKR, the private equity firm.  

“Music investments go through cycles,” Rabe said, pointing to investors’ cooling interest in music rights because of rising interest rates. “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.”

He added: “We make a decent three times our cost of capital in music.”

For BMG, Rabe said, there could be significant economies of scale from a merger or acquisition of a rival.