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Web Is Media Game Changer, Says Music Chief

Pop legend Boy George once derisively called record-company executives "bank managers who wear jeans," a view Hartwig Masuch, the be-jeaned chief executive of music-rights group BMG, seems to share.

"Artists don't necessarily want 'creative' intermediaries anymore," says the man whose clients include Will.i.am of the Black Eyed Peas and Quincy Jones. Cheap digital technology and the internet have put production and distribution so firmly into the hands of singers and writers that, he says, they no longer need big labels such as Universal or Sony, which once controlled access to expensive recording studios.

BMG, owned by media group Bertelsmann and KKR private equity, is betting the content-producing record giant of the vinyl era has to become the content-brokering music company of the web age – and that this will apply to all media sectors. "The position of content providers is growing stronger. The middle men have to redefine how they add value," Mr Masuch said.

Bertelsmann, which also owns RTL TV, Random House books and G&J magazines, is closely eyeing the Berlin-based venture as the media group casts around for ways to master the technology-driven changes in the media industry. Like musicians, authors are beginning to experiment with self-publishing on the web and TV-programme makers are dabbling with the internet as a broadcaster.

Thomas Rabe, who moves up from Bertelsmann finance boss to chief executive on January 1, was one of the brains behind BMG Music Rights, which was carved from Sony BMG when Bertelsmann sold its stake in the old-style record company in 2008.

Rather than recording songs and packaging stars, BMG manages the rights and royalties artists command over their songs. With 1m titles, BMG expects its 2010 publisher revenue to hit $290m (€200m), tiny against Bertelsmann's €16bn in sales. But earnings before interest, taxes, depreciation and amortisation are 25 per cent of sales, making it 10 points more profitable than the media group.

BMG did suffer a blow this year, when it was outbid by Sony ATV for the music-publishing business of the now defunct UK record company EMI. "EMI would have been nice to have," says Mr Masuch. Instead, BMG, which bought five rivals including Bug in the US and Chrysalis in the UK in 2010 and 2011, is back to "Plan A" – scouring the globe for catalogues and individual artists.

While independent labels grumble about the size of Sony ATV coupled with EMI in music publishing, and about Universal gobbling up EMI recorded music, Mr Masuch says BMG is "not going to raise any red flags" in front of regulators. "We have no problem with the competitive landscape post-EMI. The sector is shaking out."

Others are, too. Mr Masuch is quick to praise the web efforts of Bertelsmann's units – Random House is flying high with ebooks. But he seems to think that most sectors have not yet had to grapple with evermore independent artists. "It's a development which happened first in music but which other industries are catching wind of too."

The internet is more than a new, or an additional, distribution channel. "The web is a game-changer as it alters the relationship between artists and aggregators, the media companies of old," he says. Artists, writers and producers are finding ever cheaper ways to express themselves: "Where does that leave media companies?"

BMG's answer was to leave the creative process to the artists – and retail marketing to others. Global CD sales fell from about $32bn in 2006 to about $23bn last year. But the trend that occupies Mr Masuch as much is that small independent record labels saw UK album sales leap 50 per cent to 15m units in the first nine months of 2011 compared with the same period the year before.

"We can't predict what a 14 to 15-year-old wants to listen to – and looking at music sales, neither can the majors," he says of big rivals Universal, Sony and Warner. BMG markets songs to industrial users like TV and takes a 30 per cent cut of the royalties. BMG believes that China and India should help music-publishing revenues grow 2-3 per cent per year – and there is plenty of scope for consolidation.

BMG does not have a "huge artists and repertoire department telling artists what colour to dye their hair"; nor does it try to turn them into stars. "But we do promise to look after their music rights – and we're good at collecting their money," said Mr Masuch.

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