Bertelsmann's decision to sell the music publisher that owns copyrights to songs by Coldplay and Christina Aguilera stems from its controlling family’s desire to avoid a flotation.
The German company, controlled by the Mohn family and an allied foundation, was faced with the choice of buying back a 25 percent stake held by Groupe Bruxelles Lambert or being forced into going public.
Bertelsmann opted to pay €4.5 billion (£3 billion) to buy out the minority investor, but to cut down the extra debt built up, it said that it would sell BMG Music Publishing, raising about €2 billion to help defray the cost.Liz Mohn, the head of the family, who is married to the ageing patriarch Reinhard, is thought to be suspicious of the public markets, concerned that a media company would come under pressure to make short-term decisions.
Thomas Middelhof, the company’s former chief executive was pushed out in 2002, after he made no secret of his desire to go for a flotation as a way of expanding the company. He was replaced by Gunther Thielen, the current chief executive, who is not willing to risk a breach with the family.
Although not an easy decision — Bertelsmann’s interest in music dates back many years — the German group reached the view that its investment in music had be sacrificed so it could maintain its leading position in European commercial television and English-language publishing.
As well as owning BMG, Bertelsmann owns Five, the British broadcaster, via its television subsidiary RTL, The Bill, through its production arm Fremantle Media, and The Da Vinci Code, via its publishing arm Random House. The German company is Europe’s biggest consumer media group, earning €1.04 billion last year.
Bertelsmann’s historic preference is to try to build market share ahead of going for maximum profitability, although under Herr Thielen, much of the business has been rationalised and its profit margins improved.
Bertelsmann had already signalled that it was losing interest in music when it moved its recorded music operation into a joint-venture with Sony. Once BMG is offloaded, the rationale for retaining a half interest in Sony BMG becomes limited, and few expect the joint-venture’s ownership to remain stable for long.
However, the German company is held back by Sony’s unwillingness to buy it out, amid its own difficulties, and the dismal commercial performance of Sony BMG.
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