Private Equity Music
Private Equity Firm KKR Will Invest in Music Rights
The music business has been suffering with record sales down and more consumers turning to pirating music through websites like Napster. When Terra Firma made a $5 billion purchase of music company, EMI Group, onlookers wondered whether it was such a good idea. As it turned out, the bad economy combined with a difficult industry led Terra Firma to report nearly $2 billion losses on EMI earlier this year.Music companies present a tempting target for private equity firms, many believing that they can turn around failing record companies with restructuring by cutting costs sometimes jobs. However, as Terra Firma found, the demand for purchasing music simply might not be there and the recession has not helped album sales--although digital download sales are booming. This may explain why Kohlberg Kravis & Roberts (KKR) have taken a different approach. The private equity firm announced a joint venture to buy and sell music rights, along with German media firm Bertelsmann as its partner.
The two firms plan to obtain a portion or all of an artist's royalties while avoiding the problems with distribution and promotion. This strategy is a way to make money from the recording industry without having a major role in the actual production and marketing of the music--a very hit-or-miss part of the business.
KKR has agreed to put an initial 50 million euros ($69.5 million) into the joint venture--with an additional 200 million euros ($278.5 million) to be invested over the next few years--in exchange for 51% of the equity, while the rest belongs to Bertelsmann, which is contributing its own music rights management business for 49%. The unit manages the rights to artists such as Kylie Minogue and Roy Orbison, and in total has about 300 contracts signed with songwriters and other rights holders across Western Europe. One aim of the KKR deal will be to expand into the United States, according to a Bertelsmann representative.
Aspesi said that KKR and Bertelsmann would be well-positioned to buy catalogs of rights from myriad distressed sellers in the industry, which could include Terra Firma's EMI. With traditional music distribution still under pressure and potentially years away from recovery, labels are looking for assets to sell. Meanwhile, those who hold the rights to music stand to reap the benefits of the proliferation of online music stores and content-streaming Web sites.
Tags: KKR music industry, KKR music rights, KKR investments, KKR Bertelsmann, Kohlberg Kravis Roberts music
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