BMG CEO Hartwig Masuch was the keynote speaker on the third day of the NY:LON Connect conference this week, as part of its ‘Values-Based Music Economy’ track.
Artist contracts, staff pay gaps, user-centric payouts and environmental sustainability were all on the agenda in the interview conducted by Music Ally CEO Paul Brindley.
Masuch started with the reinvention of BMG in the mid-2000s by parent company Bertelsmann, including a strong focus on values, which he said fitted with a wider trend.
“Their perspective was that the digital world, the world we’re moving towards, will be much more concerned about values, much more concerned about transparency, and equal distribution of wealth, so you better get prepared for this,” he said.
“They said ‘we actually want to start from scratch, but it has to be a very different company. We don’t want you to be part of the other guys. What is the key differentiator?’”
“And then I said well, how we treat artists. What is our relationship to the creative community, to our clients? It has to be based on values they can rely on, and not on hey, what can I get away with?”
Masuch was blunt when describing the key challenge that the music industry needs to solve regarding values.
“A long history of taking advantage of inexperienced young people who are totally determined to have a place in the music industry, and basically live up to their creative thoughts. [They are] being taken advantage of in the contracts they get offered and are more or less stuck to them for the rest of their lives,” he said.
“That’s a big issue, I think, that started in the 50s and went on more or less to today on a broader scale. You basically as an industry are too much obsessed to take what you can get instead of saying hey, let’s start a fair trade from day one for a long-term relationship and a very respectful relationship.”
“I know that some of my colleagues in other companies think I’m denouncing the industry, but I think it’s just important to say hey, we didn’t invent it, but we are still living in those parameters, so let’s change, because we will need the buy-in of the creative community if we want to have a long-term perspective in this world.”
‘We live in a digital world now’
Masuch talked about some of the worst examples of contracts signed in the 1960s, where for a lot of artists “it was as bad as it can get: you were offered a 5% royalty for your local sales… as a five-piece band you would end up with a fraction of a percentage”.
Masuch also criticised deals signed long ago with the various clauses relating to things like physical breakage, which have not been renegotiated since.
“We live in a digital world now… very hard to justify we keep all the downsides in place while we take all the benefits of digital distribution, so that’s definitely an area where our industry has to step up without being beaten up by governments and other interested parties.”
Masuch said that BMG’s contracts now revolve around issues like ownership, royalty rates and being future-proof on the part of the artists.
“How can we make sure that artists participate if technology changes? To be pretty open to say ‘whatever happens that has a benefit on our P&L automatically will be part of your benefit’,” he said.
BMG has been going back into the old contracts signed by artists whose catalogues it has since acquired, announcing in late 2020 that in some cases, it had found statistically significant differences between the royalties paid to some Black artists and non-Black artists.
The company is continuing to work on understanding why this was the case, and to deal with it. “What is this industry about, and what does really matter? What is our approach to treating those people who are the foundation of what we represent and sell? How do we treat them?” he said.
“We again and again go back to hey, we should have a value-based approach to whatever we do… We should think about how we operate as an industry. What is important for us and what is important for our clients.”
“I think we should get away a little bit from the green-washing in our industry or value-washing where we say ‘oh, we’re great and we respect artists and we like their songs too’. Let’s fundamentally find out what is broken in our relationships and fix it.”
‘A lot of the blame goes to the big digital players’
This applies to other aspects of BMG’s business. For example, Masuch said the company is thinking about salary bands through a values lens.
“Does it really make sense to pay somebody 300 times the money somebody gets who runs the reception or is on the road with artists? How can we create a cohesive system that obviously then leads to a better buy-in of the employees?”
BMG, like Bertelsmann, has also committed to becoming a carbon-neutral company by 2030, from offsets for corporate travel to other measures.
Masuch said that he is impressed by the response in the wider industry to the climate emergency, with the recent Music Climate Pact an example of companies large and small grasping the nettle of reducing their negative climate impact.
The conversation turned back to artists and royalties, and in particular the ‘user-centric’ model – where each subscriber’s money goes only to the music they listen to – that has been discussed increasingly loudly in recent years.
“I think that’s a very interesting discussion, and would have a very big impact on our perception going forward,” he said, before addressing the wider debate about artists and streaming royalties.
“If you have uneducated watchers of the music industry, a lot of the blame goes to the big digital players,” he said, referring to the streaming services, before defending their role in creating “a much better ecosystem for the music industry” in terms of the ability for artists to release their work and find an audience.
“Then we come to the point: okay, they pay a lot of money, and bailed out the problematic development of physical. Where’s the problem? The problem is the way this is distributed,” said Masuch.
“The first problem is obviously, if you distribute those revenues on old contracts… this is not a problem of the digital distribution system, it’s an internal problem again.”
“If we want to address the criticism, first of all we have to be critical about how we deal with it. Those contractual elements that were based on the physical world? Not sustainable, not defendable, doesn’t make sense.”
‘Hartwig, old fart, just listened to two Led Zeppelin records last month…’
Masuch went on to strongly back the idea of user-centric payouts, and why he’d like to see streaming services adopt the model.
“I think they have to do what every phone company can do: basically account on the actual value of the usage, which is user-centric. If I travel to Georgia… my telephone bill four weeks later can break out every half-second of calls that I did!” he said.
“So why in hell can’t we get Spotify’s statements which say: ‘Hartwig, old fart, just listened to two Led Zeppelin records last month… so why does have to go into a big pot and be conflicted by my daughter listening 24-7 to whatever?!”
“I think that’s absolutely something we have to address to be pro-active in shaping the discussion, and then looking for a reasonable solution with respect to government involvement in our business. There are a lot of areas where I totally disagree with parliamentary initiatives right now, but hey, first of all we should present ourselves in an honest and reasonable way.”
Masuch has been following the recent debates about streaming, the music industry and economics, and he suggested that the voices of artists who have spoken up should be listened to carefully.
He suggested that some of BMG’s bigger competitors and their industry bodies will “defend the status quo that we think is not defendable”, and warned that “we all underestimate that more and more artists with prestige and relevance actually join very industry-critical discussions.”
He said that recent campaigns and the streaming economics parliamentary inquiry in the UK are good examples.
“There weren’t many artists who stood up for the big industry players, but there were a lot of artists who voiced their concern about the way the business is run. If our biggest clients don’t stand up for us, we should be concerned! We should not be as defensive as we present ourselves.”
‘In five years the industry will not look like it does now’
Masuch finished by looking forward, and predicting that the prominence of values-based business in the music industry will only increase, particularly as bigger investors come in to the market.
“I really think in five years the industry will not look like it does now,” he said. “The biggest impact on how we will operate and how we are structured will be the enormous amount of very qualified capital now approaching artists,” he said.
“We as an integrated industry will not be able to compete with it, so we need alliances, and those alliances again will force us to change our behaviour. If one of the big capital pools you can read about now every day joins an industry relationship, they will massively enforce change of behaviour.”
“No, you will not get away with ‘well you can audit me in New York between lunch and dinner, and then we have a two-years negotiation about what you might get, or we compromise in the middle’. They will ask you exactly to live up to values of fairness and transparency,” he continued.
“This is actually just the start of a massive transformation of our industry. Massive!”