As the Berlin-based music group BMG was bargaining over the terms of the sale of its record label to Sony 15 years ago, executives at the New York-headquartered entertainment giant could not understand why their German counterparts wanted to hang on to the likes of Rick Astley.
Like a string of “legacy artists” that BMG was eager to keep on its books, the British 1980s icon seemed like a relic of the past. “They were getting nervous and saying: why do you want this?’” recalled Hartwig Masuch, the legendary BMG chief executive who steps down next month after 15 years in the role. “What is going on? What do we not understand?”
What Sony had seemingly not yet grasped was how the value of back catalogues would be transformed by digitalisation, making old classics from decades past available on demand. Last year, 35 years on from its original release, Astley’s “Never Gonna Give You Up” was streamed more than 850mn times, making it BMG’s best-performing single track.
Thanks in large part to catching on early to the value of artists’ back catalogues — and snapping them up in a huge buying spree funded partly by the US private equity firm KKR — BMG is now the world’s fourth largest music business.
Although it is still dwarfed by the industry giants of Universal Music Group and Sony’s music division, which earned revenues of $10bn apiece last year, and Warner Music Group, which brought in $6bn, it is on course to earn record annual revenues of €1bn by 2024. That compares with less than €300mn in 2014.
“We have years where we outperform every [rival] company in revenue growth without having one hit on the Hot 100 Billboard charts,” Masuch said in an interview from his office with views over Berlin’s Gendarmenmarkt and a crimson Fender electric guitar in the corner.
“That’s not because we’re geniuses,” said the 68-year-old, himself a former frontman in a German new wave/punk band. “There are more people older than 25 who listen to Spotify than younger than 25. And we know that people starting, let’s say, with [the age of] 20 stick to a very high degree to what they experienced when they were younger.” Today, about 60 per cent of BMG’s revenues come from publishing existing music.
Though he hates elements of the music business, he is optimistic about the future for musicians — and is evangelical about the benefits of the online streaming services that he says have created a much more reliable and transparent revenue model. “It is a big game changer for the freedom of artists.”
Masuch, who pairs jeans and a long-sleeved T-shirt with a Swatch watch, has eschewed a rock’n’roll lifestyle, avoiding award ceremonies that involve “too much posturing”.
Instead, the self-described “mad music fan” — who cites The Rolling Stones, the Beatles and Pink Floyd as all-time favourites — prefers to spend time one-on-one with artists.
He laughs at some of his encounters over the decades with his musical heroes, such as the time Mick Jagger came to join him at a dinner in London. “I had no idea what to talk about. It took me half an hour to be able to speak.”
There were just three people working at the company when Masuch became chief executive in 2008: him, a finance specialist and an assistant. It was two years after the founding of Spotify. CD sales were declining rapidly and the music industry was in crisis.
BMG’s parent company, the German media giant Bertelsmann, had taken the unconventional decision to dismantle the business — selling it off to Universal and Sony — and start again from scratch with a focus on marketing music rights rather than the traditional emphasis on recording and releasing new records.
Masuch built a new company that pitched itself as an alternative home for artists fed up with the three US “majors”, whose executives he holds in thinly disguised disdain.
The chief executive, who has said in the past that he earns about a tenth of industry peers whose pay packets have at times exceeded $100mn, promised artists a new kind of structure that “represented” their back catalogues rather than owning them. Those attracted by the model include two members of The Rolling Stones, two of the Beatles and Pink Floyd’s Roger Waters. Kylie Minogue, Nick Cave and Rita Ora are among those recording and releasing records with the label.
Alice Enders, a music industry analyst at the London-based Enders Analysis, said that under the watch of Masuch, BMG had “constantly grown” as the former economics student had prioritised sound financial management and taken advantage of the benefits of being owned by the cash-rich Bertelsmann.
“A lot of it is not organic growth — it’s through investment,” she said. But she added that Bertelsmann had “put a lot of money” behind Masuch because of BMG’s “very attractive” earnings before interest, taxes, depreciation and amortisation margin of more than 22 per cent last year.
Masuch, who grew up in a small town near Dortmund, says that being a German company in an industry dominated by US players has had upsides and downsides. It has sometimes proved challenging to explain to artists why they should work with a company based in Berlin rather than Los Angeles or New York, he acknowledged. But he argues that being outsiders has also helped to cultivate a “distinctive, more frugal culture, [with] less ego”. “Artists don’t like to be dominated by big egos,” he said. “They prefer to be the biggest ego in the room.”
There have also been pros and cons of being owned by Bertelsmann, a family-run empire that also owns Penguin Random House and broadcasting group RTL.
“There are very few people making the decisions and they can be very opinionated,” he said. “But on the other hand, they can make very quick decisions once they have trust in the strategy.”
His successor is a scion of the family, the 33-year-old Thomas Coesfeld, who has worked since 2021 as BMG’s chief financial officer and is one of two brothers being groomed for senior leadership at Bertelsmann.
He will have to confront headwinds in the industry — and the first big test for music as an asset class — at a time of elevated interest rates. Investors have poured billions into acquiring song rights in recent years but tighter economic conditions poses a challenge to those cash flows.
Masuch is coy about his future plans beyond a three-month “detox” when he will stop picking up his phone. He says he is not retiring and hopes to “get more involved in the financial industry.”
Asked whether he counts BMG artists as friends or just clients, he chuckles: “We’ll find out in four weeks.”
But he is deeply proud of what he has built. “To have a business relationship — and to some degree a very personal relationship — with bands that totally mattered for me when I developed my love for music, for me, it’s obviously the biggest achievement.”