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“Our model is to be in the ‘yes’ business, to create opportunities for our writers, artists and ourselves.”

THE FLYING FRENCHMAN

An exclusive HITS interview with BMG Chrysalis President, Creative and Marketing, N.A., Laurent Hubert by Roy Trakin
French native Laurent Hubert boasts more than 20 years of international management experience, including a dozen years within the music publishing industry, most recently as President Creative and Marketing N.A. for BMG Chrysalis, where he has overseen the music publisher, a joint venture between Bertelsmann and investment company KKR Financial Holdings [Kohlberg Kravis Roberts] launched in fall 2008 after BMG shed its previous publishing company to Universal Music and its 50% joint venture to Sony Music. The N.Y.-based Hubert has been living in the U.S. for the past 22 years, but has traveled around the world. Before entering the music business, he spent eight years in various marketing roles for Club Med, joining the old BMG Music Publishing in 1999 before leaving in 2007 to become a partner at Parthian Strategies, a media advisory boutique. Since the formation of BMG Rights Management, now BMG Chrysalis N.A., in 2009, Hubert has played a central role in re-establishing the company in the U.S. through the acquisition of a variety of catalogs, including Cherry Lane, Evergreen, Chrysalis and Bug Music. He’s also an avid flyer, having logged more than 1,500 hours on his own small plane, landing just long enough to get trapped into this conversation with HITS’ very grounded Roy “Oy Veykin” Trakin.

Why did Bertelsmann sell its publishing and recorded music holdings in the first place?
As one of the oldest music companies in Europe, Bertelsmann has always had an interest in publishing. The reason they disposed of the BMG assets at that point was to refinance the buyback from a significant shareholder, who had the ability to force it to go public, and Bertelsmann has a long tradition of being privately held. The premise for the disposal of their 50% Sony/BMG JV in September ’08 was the feeling that the recording business was changing rapidly, and reforming it, from within, while being part of a major, would prove extraordinarily difficult.

BMG Rights Management has been bullish on acquiring publishing companies like Crosstown Songs [2009], Cherry Lane [April 2010], Stage Three Music [August 2010], Evergreen Copyrights [September 2010], Chrysalis [February 2011] and Bug Music [October 2011].
It was originally created as a European business. But with the economic crisis around that time, a number of opportunities emerged in terms of buying assets. The aim was to accelerate the growth of the business by partnering with the financial assets of KKR to build a company with a broader scope than purely European. I joined the new BMG in August 2009 to execute on that strategy of developing the U.S. business. We knew we had to buy assets quickly to get to the point of critical mass.

You were unsuccessful in bidding for EMI Music’s publishing holdings.
When you get into an auction, you put in an enormous amount of energy into getting the deal. When that doesn’t happen, there’s some amount of disappointment. The flip side is, there will be a number of opportunities, both tactical and strategic, in the current scenario. Obviously, Sony and EMI will go through a lengthy process of regulatory approval in the U.S. and Europe.

So you figure there will be some divestitures required?
It’s probable, and you’ll also have a period when not much will happen while those two companies await approval, and that is disruptive in nature. The third aspect is, you will have a significant integration taking place, which will interrupt regular operations for the next 18-24 months. Between picking up those assets and being able to perform in this marketplace, there should be plenty of opportunities for us…and not just in catalog. You will have writers and artists with expiring—or even active—deals wondering if this new company is what they originally signed up for. Are they comfortable with the increased size of the operation? Perhaps they might consider a smaller, boutique-type home, one more attuned to their needs, where they matter.

As we move into a digital world, the licensing and accounting of various extra-recording revenue streams—traditionally the domain of music publishers—becomes increasingly important.
When you look at the area of back and deep catalog on the master side, it’s a licensing game, a business that very much resembles what we do as music publishers. We don’t think the extreme compartmentalization between publishing and records will continue. At the end of the day, users are looking for music, and they don’t want to deal with both the publisher and the master owner. If you have the ability to control both the publishing and the master, you have the angles to unlock more value than if you only own one side or the other. For many artist/writers today, the label has become less and less relevant. We want to introduce a new music publishing model, with a 75/25 split between publisher and writer, a simple deal where we own both the master and the publishing. It’s something we are experimenting with in Germany and the U.K., and we’re going to launch in the U.S., signing bands and artist/writers with an existing base of fans that are touring on a consistent basis, and selling from 30-50k units. We think we can attract artists and bands with a very different model where you share—at a much higher proportion—the upside of the business, as opposed to what you have currently with your label deal. What we’ve found is, when artists realize they have significant upside, it completely changes the deal structure. It’s no longer about the large advance—because they believe that’s the only money they’ll ever see from the label—but essentially monetizing and maximizing the opportunity by forging a true partnership. And we’ve received some interesting reactions from those proposals. We want to be innovative, both in the deal structure and in what we do on a daily basis—what needs to be outsourced and what needs to be managed in-house. How can we look at things differently than the labels? That’s what we’re trying to establish here in the U.S.

Are you talking about 360-style deals?
Actually, no, they’re more like 180 deals. We don’t pretend to be able to add value in touring and merchandising. My feeling is it’s more a policy than a strategy for the record labels. There’s a question whether they deliver value against those rights. We feel strongly we know how to manage publishing and masters, and that’s why we tend to call them “180 deals.” Not to say, that in certain instances, we wouldn’t want to share in touring and merchandising sales, but only for the purpose of recoupment, and only for a finite period of time. That would only be there to mitigate the risk in the deal.

What does the phasing out of physical product mean for music publishers?
The transition is a challenge because, so far, digital sales have not compensated for the loss of mechanical income on the physical side. We do believe that digital will represent a significant opportunity, not solely in terms of mechanical revenue, but in terms of exploitation, like the Spotify or Pandora model. We feel that, for the success of a subscription model, there’s a need to have significant reach. Clearly, the Internet service providers, the mobile operators or other significant Internet players such as Google, Facebook, Twitter and Amazon will play a considerable role. Ultimately, I think they’re more likely to win that battle for critical mass than say, Spotify. The marketing costs of growing and maintaining a subscriber base, along with acquiring content, for the more successful companies like Spotify or Pandora, who have, say, a 2-3 million reach, are prohibitive. Five of the major ISPs control 50% of the household broadband connections in the U.S. That’s a big number. Mobile operators represent another multi-million customers. It makes more sense to position them as major players in this space. And it won’t just be music, either, but all digital content—film, books, TV, etc. Charge $3-5 a head, or fund it internally. There are many ways of doing it that no one will even realize they’re paying for it. In the end, I don’t think companies like Spotify or Pandora will be as critical to the growth of our business as some people might think.

Do you believe the major label world is destined for extinction?
There will always be a place for major players in that space. There will always be artists looking for the reach they allow, provided that the labels can adapt to the market. They have to understand that the business is becoming increasingly micro-transactional. You have to manage an overhead with that in mind, one which can scale up and down as required. As music publishers, we’re accustomed to that. They’re also going to have to bring marketing costs under control, by looking hard at their business, and defining what it is. They want to grab 360 rights, but I’m not sure they have the capability to support and deliver on them. The majors have to decide where they can add value, and if they can’t, they should get out of those areas, because they’re not sustainable. I look at our industry as being a filter of talent that has the best chance to succeed. I would want to manage and develop that talent accordingly—that takes good A&Ring, a good marketing team in place… But it’s really about culture, accountability and ownership. One of the problems with the major labels is the lack of transparency vis a vis what they do for their artists. How can you effectively manage a very large number of acts when costs and head count have been cut significantly over the past decade? That’s why the influence of the labels has waned, while that of publishing and management companies has gone up. Because they end up doing all the things the record companies used to do. The labels must organize their priorities. I think that’s starting to happen, but we still have a long way to go. But there will always be a place for companies that control a large amount of rights and operate on a large scale.

How did your 10 years at Club Med prepare you for a music industry career?
There are many similarities. Vacation is entertainment, too. For Americans, especially, who have less time off than the Europeans, each one is meaningful. If, as a provider of that experience, you’re not equipped to deliver the best return on their investment—in terms of experience, relaxation and discovery—you will not survive. In the music business, it is very much the same. We deal with artists and writers. Everything they do, every decision they make, is very personal. When a writer decides to join a publishing company, it is the function of any number of factors—the size of the check, the deal structure—but ultimately, it’s a personal decision. In the travel business, it’s the same. It’s all about delivering the best relationship and rapport with your writer or client.

You’re talking about customer service and loyalty.
Exactly. There’s a personal component to it. Our business is not a commodity, it’s not all a dollars-and-cents decision. A vacation is something you want to make sure is tailored to fit your personal needs, and delivers on your expectations. For a music publisher or record company, it’s the same. We have to manage what I consider is an awesome responsibility—the copyrights and hard-working creativity of a writer and artist.

How do you compare the U.S. and European markets?
I have the benefit of having a European sensibility, but also an understanding of the American market...how things have to be different, functional and fast. Operationally, Europe is a little easier because you have the support of the collection societies on the publishing side. The U.S. operation is a little more complex, a little larger. In terms of the creative process and opportunities, it is comparable, but I would give a slight edge to the U.S. market because things happen faster here. What I like about America is, there’s not too much back and forth. Either there’s a will to do something, and it happens, or there’s no will to do it, and then it dies very quickly. In Europe, there’s more procrastination, a little more discussion. And some of it is not that enjoyable. Sure, it’s a nice meal and a nice conversation. But what I like about America is it’s so objective and results-driven. Europe is a little softer and things take a little longer.

You’re a pilot.
I’ve been flying for 15 years now. I fly almost every weekend. I’m lucky enough to own my own small plane. It’s my therapy. It allows me to escape from the day-to-day and see the world from above, which is a beautiful thing to do. It’s also a fairly functional hobby. It’s a great way to travel.

How do the old and new BMG compare?
We’ve taken the foundation of the old BMG, which is very much Bertelsmann’s philosophy of being in this for the long haul, then added to that the fact we’re a new company, which means we’re more agile, more innovative. We’re not dealing with legacy issues. It’s a freer environment. Our model is to be in the “yes” business, to create opportunities for our writers, artists and ourselves. That’s the way we operate.

One last question: Who do you prefer, Jerry Lewis or Jean Renoir?
Since I am French, you may think Jerry Lewis, but no. For me, it would be Jean Renoir. He led an extraordinary life, “exiled” himself to the U.S.—as I did—and directed one of my favorite movies, La Grande Illusion.

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