News | BMG | Berlin, 10/25/2023

‘Between Technology and Creativity’

Thomas Coesfeld has been CEO of BMG for just over 100 days. In our interview, he talks about the state of the company, his first actions as CEO, the streaming business, the use of artificial intelligence and, of course, his encounters with superstars like Jennifer Lopez.

Thomas Coesfeld has been CEO of BMG since July 1. Before that, he had served as CFO of Bertelsmann’s music subsidiary since 2021. In an interview, he talks about the state of the company, his first actions as CEO, the streaming business, the use of artificial intelligence and, of course, his encounters with superstars like Jennifer Lopez.

Mr. Coesfeld, you’ve been CEO of BMG for just over 100 days now. How have the first few months in the new role been for you? What has made a particular impression on you?

I went on tour from our headquarters in Berlin immediately after taking office and visited our major subsidiaries in London, Nashville, New York and Los Angeles. It was important for me to meet all our leadership teams on the ground as quickly as possible in my new role, so I could get an accurate picture. What really fascinated me on my first tour as CEO was the motivation and drive of my colleagues. It’s inspiring to see how motivated everyone is to develop BMG and move this great company and the industry as a whole forward.

What were the first focuses of your work as the new CEO of BMG? Where are you setting your priorities?

We already announced a few weeks ago that we would be taking our digital distribution into our own hands in the future. This is a milestone for BMG that puts the streaming business absolutely in the focus of our actions. The entire area of digital distribution represents around 300 million euros in annual revenue for BMG. We are now signing direct contracts with the major streaming services such as Spotify and Apple Music, giving us access to immensely valuable streaming and trending data. A second important point is that we will be able to pay out streaming royalties to our artists much faster in the future, up to four months faster.

Speaking of distribution. Vinyl records have been experiencing a renaissance for years. How important is vinyl for BMG?

Records are much more than mere sound carriers – vinyl is also an important fan item and above all, a statement. A statement that music is important, that you’re a fan of Mötley Crüe, Kylie Minogue or the Rolling Stones. Overall, physical recordings still account for about ten percent of our revenue, and vinyl had overtaken CDs in terms of revenue by 2021. And many of our artists also want to release their music on vinyl. Incidentally, we always work with our sister company Sonopress, which also produces records for us in addition to CDs.

What sets BMG apart, anyway?

We are the only music company outside the three big majors Universal, Sony and Warner that is truly globally active. But unlike the majors, we don’t have a separate label structure where the individual labels work independently of each other. This means that at BMG we can mobilize all our global power and focus on major releases like recently with “Tension,” Kylie Minogue’s new album. Not thinking in labels makes us truly strong and allows us to offer a special service to artists in the recordings sector.

... and in the publishing business?

In publishing, i.e., the management of song rights, which accounts for around 60 percent of BMG’s revenue, it’s our technological approach that makes us special. From the very beginning, BMG has fully integrated all the music publishers it has bought, from a tech point of view. That means there is only a single system for royalties accounting. As far as we know, this is still unique in the music market and gives us enormous advantages in terms of costs and the speed with which royalties are settled and distributed to authors. This complete integration is a huge advantage that cannot be easily copied by other companies.

And how is BMG doing right now?

BMG is doing well; we grew by 11.5 percent in the first half of 2023. The company is on an absolutely solid footing, but the market is changing right now. We’ve experienced ten years of strong expansion with double-digit growth rates every year. Now the market is becoming more difficult. The music market is much more tech-oriented today than it was ten years ago, and there are other new platforms that are becoming relevant. Spotify, Apple Music and YouTube we know, now platforms like TikTok and Instagram are becoming more important, with “short form” content at their core. Features like “Instagram Reels” and “YouTube Shorts” – not to mention TikTok – mean that the consumption of music is changing, it has a whole new quality.

What do you see as your most important task as CEO?

Basically, I see “Strategy,” “People,” and “Culture” as my most important tasks. For me, these are the core elements of my work as CEO. Then there’s the work with the big platforms like Spotify, YouTube, Apple and Google. These are, after all, the very platforms we work with, with whom we are right now concluding licensing agreements for the use of our music. In terms of strategy, a key step is the “streaming first” principle. To that end, we’re continuing our acquisition strategy, we’re considering how we can best support artists and what impact that will have on BMG’s direction – these are all important strategic elements for me.

... what about “People” and “Culture”?

With all the market changes I’ve described, it’s important to have the right people who understand digital platforms from the ground up. Good people join a company when it has a good culture. For me, a good corporate culture and good people go hand in hand. The latest employee survey shows that BMG has the foundations of a good corporate culture. It showed that our colleagues find their work very meaningful and enjoy it a lot – I think that’s very good. But there is still a lot more to do.

Everyone’s talking about artificial intelligence. What is BMG’s position here?

We’ve been working with artificial intelligence at BMG for a long time, especially in our Production Music and Synch divisions. Here, we use AI to analyze and describe songs so that we can make appropriate suggestions to customers. With the emergence of generative AI, i.e. artificial intelligence that can independently create content such as texts, music or images, completely new possibilities are opening up now. I can well imagine us using generative AI to create marketing assets such as graphics, images or short videos when developing a 20-second clip for a new release that is then published on TikTok, for example. But the even more exciting process is the whole field of improving the quality of already existing music using generative AI. Here, significant new possibilities are conceivable for creating, improving and marketing music. I see this as a huge opportunity overall. Of course, generative AI poses major challenges to the definition of copyright. But I’m very optimistic that the industry will find solutions, for example through “digital watermarking” of songs. BMG is committed to working with the music industry to find solutions to these problems.

In the past few years, enormous sums have been paid for music rights. What is the current state of the market, and what opportunities do you see for BMG here?

BMG has a unique position as an investor because we are a music company. We know the music business and how best to monetize music. For this business, market knowledge is most relevant, and some funds don’t have that, looking at financials alone. For some funds, this will be a hard lesson, but we expect that it may allow us to bring some high-quality assets back to the market.

BMG works with famous artists like Mick Jagger and Kylie Minogue. How much personal contact do you have with these superstars? Do they all want to meet the new boss of “their” label?

That differs from one individual to the next. Many of the artists actually want to know who the new guy at the top of BMG is, precisely because the music business is often such a personal business. One particularly impressive encounter for me was meeting Jennifer Lopez, who has just signed a global label and publishing partnership with BMG. We were at her home in June to listen to the new album that will be published through BMG. It was a very personal experience, and she explained to us the motivation behind each of her new songs. Our artists are very different, but many have a cause, they want to make a difference with their music. That’s the case with the Stones, but also with JLo, Kylie Minogue, and our young country star Jelly Roll.

And what are your next steps?

We just held a management meeting with around 50 BMG executives in Berlin to discuss the company’s situation and future strategy. So, also in view of the rapidly changing market environment, we will review our processes and business areas and fine-tune them where necessary. In addition, we will be on the lookout for further acquisition opportunities. Thanks to Bertelsmann’s “Boost” program, the funds for this are available. In our business, we operate in an area of interplay between technology and creativity. It’s an exciting and inspiring environment.