The news that BMG Rights Management is expecting to generate revenues of about $14.3 million in its first year may have gone some way toward cushioning the $478 million half-year losses its parent company has suffered.
Although its pre-tax operating profits dropped from $979.8 million to $679.3 million, the biggest hit was the $679.77 million costs of a group-wide restructuring that is expected to bring annual savings of nearly $1.3 billion.
The new rights management company, a joint venture with New York private equity firm Kohlberg Kravis Roberts & Co. (KKR) is the Gütersloh-based company’s last link with the music industry, after selling its recorded music interests to Sony and its publishing business to Vivendi Universal.
Bertelsmann owns 49 percent of BMG Rights Management, which has recently signed top German acts including 2Raumwohnung, Peter Fox and Nena, and also has an option to buy out its American partner.
“By forging this partnership with KKR we are able to establish this new business more quickly, create value and then make a decision later on as to whether we want to take over all of the business or not,” explained Bertelsmann finance chief Dr. Thomas Rabe.
When the business started in October 2008 its catalogue consisted of about 200 artists. Since then it has signed 100 contracts with songwriters and other rights owners, including top-selling Norwegian band A-ha.
At an Aug. 31 investor conference call, it also fell to Rabe to explain that the weakness in the advertising market has hit Beterlsmann’s revenues, particularly at RTL Group and Gruner And Jahr.
RTL Group, Europe’s largest TV, radio and production company, saw its operating EBIT drop from $708.49 million to $506.28 million, while Gruner And Jahr – which publishes nearly 300 magazine and newspaper titles across 22 countries – fell by more than half from $167.86 million to $80.35 million.
Bertelsmann believes its cost and efficiency program will soften the impact of the global economic crisis and the positive effects across all divisions will be reflected in the full-year figures.
Bertelsmann chief exec Hartmut Ostrowski believes the company is “resolutely countering” the decline in advertising-related revenues.
“The top priority at this point is to stabilize Bertelsmann’s existing businesses, preserve liquidity, and safeguard the operating result. In this way, we will continue to develop our company and create the conditions for future growth,” he said.
“Our strict cost discipline is beginning to have a significant positive financial impact. Every division, including group headquarters has systematically reviewed all costs and structures. The packages of measures that were put together as part of this program are extremely wide-ranging and varied and will save us over [$1.3 million] in this year alone.”