Bertelsmann Music Group is blaming the shrinkage of the international recorded music business for a 5.2 percent drop in revenues and a 2.3 percent drop in profit.
Turnover fell from euro 2.1 billion to euro 2.0 billion, while the operating EBIT dropped from euro 177 million to euro 173 million.
The BMG division of Bertelsmann is made up of two entities, both of which are in a state of flux.
The 50 percent holding in the Sony BMG Music Entertainment joint venture is under scrutiny from the European Commission, while BMG Music Publishing – which has been sold off to Universal for euro 1.63 billion – is also likely to attract the attention of the monopolies authority.
The latest figures published March 21st came with a company statement that said: "The diminished result in 2006 is attributed solely to the recorded music business.
"This should be seen against the background of a further decline of the worldwide music market by 5 to 6 percent, largely caused by shrinking CD sales, also experienced by Sony BMG despite its slightly increased market share.
"Meanwhile, the company was able to raise the revenue contribution from digital formats from 7 to 12 percent: Sony BMG improved its sales of downloads and subscriptions on online and mobile platforms, and also began marketing music video content."
The margin loss at Sony BMG was offset by higher operating profits at BMG Music Publishing and the elimination of amortizations of music rights.
BMG Music Publishing’s positive performance, and substantial cost cuts due to the restructuring of Sony BMG, only partially compensated for losses sustained by lower product sales.
Rolf Schmidt-Holz, a veteran Bertelsmann manager, replaced Andrew Lack from Sony as head of Sony BMG at the start of 2006.
As a result, the scope of the restructuring was expanded to include the integration of the Country music labels in Nashville, the reorganization of the Sony Music U.S. Label Group, the merging of the U.S. sales organization for physical and digital formats, and the bundling of the U.S. catalogue business.
The BMG figures are hardly likely to give its execs any cause for celebration, but Bertelsmann – the parent company – may be cracking a bottle or two as it had its best year ever.
The international media company announced that revenues rose by 7.9 percent from euro 17.9 billion to euro 19.3 billion, while the operating EBIT was up 16 percent, from euro 1.61 billion to euro 1.86 billion.
With the sole exception of BMG, all its corporate divisions improved their financial performance year on year.
The operating return on sales also reached a new high at 9.7 percent, up from 9.0 percent in 2005. The group’s net income more than doubled to euro 2.42 billion (2005: euro 1.04 billion).
"The figures for 2006 clearly show that we are heading in the right direction. Bertelsmann has never been more profitable. Our 9.7 percent return on sales puts us very close to our ambitious target ROS of 10 percent," said chairman and chief exec Gunter Thielen.
"At this level of profitability, we can generate the cash flow necessary to continue growing without additional debt. We are already preparing for the next period of growth. We plan to actively shape the digital future, worldwide, with our innovative media content and services."