Sitting in the reception area of BMG's west London HQ, you don't feel part of an industry in crisis. From the plasma screens blasting MTV to the giant pictures of famous stars in the music label's history. From Elvis to the Eurythmics and Westlife. From the silver automobiles of a distinguished German-make that pull up outside in the rain to disgorge silver-haired businessmen into the indoor cafe that will sell them a Starbucks, first appearances reek of confidence.
But, as we know, BMG is part of an industry feeling anything but confident about the future. The role of digital in that crisis of confidence has been the subject of speculation, but the rise of digital music and file-sharing - pioneered by sites like the original Napster and Kazaa - has been a source of discomfort. Industry trade body BPI partly blames illegitimate downloads for falling single sales. According to its figures, by April 2003 some five million people in the UK had downloaded music and it estimates more than one billion tracks are downloaded in a year.
Clearly excited by the new wave of online downloading services - from new Napster to iTunes, to Sony Connect and Rhapsody - the future that BMG wants to be part of is also mobile. It has proven, with its hip-hop stars Outkast and a partnership with O2, that mobile music sells. It is, Revolution reveals, signing deals with T-Mobile and ringtone specialist Jamba, to promote and sell its artists' music to more users.
"Digital business in this company, particularly with the mobile opportunities, almost feels like a mini-dotcom boom, except there are the numbers to back it up," says Jon Davis, director of new media at BMG UK & Ireland.
He should know. He joined BMG in 2001 after co-founding pioneering digital download start-up site iCrunch. "I think 2004 will be the tipping point for digital media in this industry." He reckons the opportunities go far beyond ringtones - a market estimated to be worth $800m - and the timing is right. "Apple has made paying for downloads cool. The iPod is a desirable piece of kit," he adds.
But it's not just the climate in regard to consumers and music that has changed. Clive Rich, VP, legal & business affairs, HR & new media, at BMG: "When the internet first impacted on the industry, record companies were in a rush to find the answers together. One of the things is the whole change in the mindset of record companies - not thinking they're just in the business of selling bits of plastic. Manage artists, create great music, and manage and maximise rights and revenues." Rich has been at BMG for some 15 years now and one of the biggest changes he has seen is diversification. From worrying about a single product - album, cassette or CD - the company has moved into DVDs, merchandising, internet and mobile.
"We have got into non-traditional areas - sponsorship and merchandising and so on," he explains. For example, BMG is involved with Simon Cowell's new X-Factor TV show, which breaks ground by effectively benefiting the label by licensing the format on.
The sea-change is that digital has become an opportunity, says Rich. ITunes has shown the demand for legitimate digital music and the figures are impressive. It has yet to launch in Europe, but the new Napster is about to arrive in the UK. BMG sells around 10,000 downloads a week in Europe and it has 200,000 tracks for digital sale. According to Davis, sales have quadrupled in the last six months. "We expect the figure to rise dramatically with services from the likes of Apple and Napster."
Rich says: "Opportunities are arising to make money out of digital content. With mobile, this is because consumers are used to paying on a micro-basis, and are in the habit of consuming content and paying for it. People can see a way to make money. It has helped us to conquer our fears. We're open to business as long as we can look after our assets, securitise them and generate revenue. It has got to be about revenue."
Again, Apple's iTunes in the US is mentioned as a turning point. "If we had an Apple here, we would've been happy trading with them, but they've been learning as they go. It's a difficult thing to do." That's not the only thing that has been difficult. Like so many industries, Rich says record companies stretched themselves with their initial approach to the web. "When it all started, they could suddenly be this consumer brand. That's not part of our strength or what we do offline. Record companies have retreated from the notion that they could do that."
As the key asset of any record company, the artists are the focus of BMG's digital strategy and, as recording technology progresses, they're also getting used to digital media. Davis adds: "Different artists are at different levels with digital, like consumers, but plenty ask about online and come up with ideas, so why don't we do it?" And they all have mobiles - the area Davis is most excited about. "The mobile space is almost a Tarzan-type economy. The mobile space is the vine and we are moving from the illegitimate vine of mono- and polyphonic ringtones, where you don't have to work with record labels. We are swinging forward to the vine where these official relationships are needed. We'll pick up Jane along the way," he jokes.
It's just as important for the networks. "Increasingly the networks are having to grow their involvement with music and content and, of course, revenue. As download speeds increase, handsets increase in power, the price points increase, and the opportunity arises to deliver more and more," says Davis. He thinks the initially fraught relationship between the music industry and online has helped paradoxically. "What the labels have done with the internet has contributed to a change of mindset - the approach to mobile has been very open and active. In trying to establish ourselves in the internet space, we realised we're not set up to be a major business-to-consumer play. That has helped us establish our priorities with mobile."
Spearheading BMG's mobile strategy has been hip-hop act Outkast. The partnership has sold 10,000 units since March 2004, Davis tells Revolution, most as mobile content. But the connection with O2's latest hardware, the mobile Digital Music Player, is potentially important. "It's like the Rio Player, which inspired me in the early days of iCrunch. It is the idea and the fact that it works, and the technology will, of course, improve." Buoyed by the success of its 02 partnership, BMG is talking to other mobile networks in the UK. A dedicated area of O2's WAP service, O2 Active, offers an exclusive remix of Outkast's The Way You Move. It also retails downloads via O2 Online. "We have been able to work with 02 successfully at operational level," says Davis. "O2 gives added value to our traditional campaign. We are in discussions to create version two of the campaign."
It won't just be Outkast that features in O2's mobile initiative. "What tips the decision over which artist we use is what consumer segments our partners want to target," explains Davis. "We need to decide what is going to appeal and resonate with the audience." Depending on content, a download costs up to £3.50. In this deal, O2 sets the price. "If we work with other networks, we want to follow the same model. It depends on the value of the co-marketing relationships." The more BMG gets from the partnership, the more it will offer.
BMG has structured its departments to bring its direct marketing function closer to new media. As Natalie Waddell, direct marketing manager at BMG, explains, the direct function covers online, offline media and SMS. "They complement and support each other. Content has opened up much more with digital media. We can offer digital content and exclusive content." This is in the form of music (see box, p33), interviews or messages from stars like Will Young.
Its data is collected through the usual route of cards enclosed with CDs, but increasingly it comes from online sources. It is divided by artist or genre. Westlife, one of the label's more established acts, has some 300,000 names while Faithless has about 100,000. Generic profiling helps with the launch of a new artist and users can be told of their favourite band's new releases. Waddell says communications have to be tailored to each fan base and competitions make this more effective.
Viral marketing is useful. BMG promoted The Cooper Temple Clause last August in their own animated, controversial, 'snuff' movie. "We found an artist's work on metalbaby.com and he produced the animation. Some 18,000 people played the game. It got us coverage in NME, which was a bonus," says Daniel Ayers, new media marketing manager at BMG.
It is becoming clear that downloads have a dual function. Not only do they have a promotional value, but they can provide an important revenue stream for the label and artist. Key to this promotional worth is the music chart. Downloads are not recognised by the official charts, but plans are in place to incorporate such data. "We are very much driven by the chart. It is the way the music industry is sold by most retailers.
Downloads don't count. This will change and that is going to accelerate the value of downloads to the business as a whole," says Davis. Download value depends on the artist, he adds. "It depends on the legacy of the band. We don't want to give our content for free, but it can work at certain stages of a band's career, when it can be free. But it is important that revenues are generated."
It is a joke often made about the music business, that the business takes over. But Davis says it boils down to one thing: "We can send out emails six weeks before a single and we can time the promotion for a release perfectly with new media, but having great records to work with helps no end."
BMG USES DIGITAL CAMPAIGN TO PUSH NEW FAITHLESS ALBUM
Interaction is key to the new Faithless campaign. Fans can win tickets to see the band in Barcelona and, thanks to Radio 1, they can remix the band's work with the chance of a future release (www.bbc.co.uk/radio1/onemusic/exposed/faithless_417p01.shtml/).
BMG is running a campaign embracing online, email and mobile to boost sales of Faithless' latest album, No Roots. It is the band's fourth album, so BMG has access to a dedicated database of 95,000 fans aged 19-29.
In mid-April, the campaign launched with email and SMS promotions featuring obtuse lyrics such as 'inaction is a weapon of mass destruction' from the single Mass Destruction, which is released on 31 May.
"We wanted to give as little information as possible to build suspense," says Natalie Waddell, direct marketing manager at BMG UK & Ireland. "Those in the know might guess, but they'd have to wait to find out more."
Emails went to 33,000 fans, postcards to 15,000 and SMSs to 7,000. And a speculative email was sent to a targeted 40,000 from the BMG database.
A remix of Mass Destruction was available online only, four weeks before the single's release.
The digital elements of the promo will come together with the launch of Faithless' site (www.faithless.co.uk) featuring digital versions of its back catalogue for sale. Built by de-construct, it will integrate 7Digital's download store and AmpleFuture's mobile content.
"Digital brings the content closer to the audience," Waddell adds.
TIMELINE FOR BMG
1986 - Bertelsmann buys a music publishing firm (now called BMG Music Publishing), a retail distribution system (now BMG Distribution), and a special products division, (now BMG Special Products). Sonopress USA established.
1987 - Bertelsmann Music Group (BMG) established with core labels RCA, Arista and Ariola. Founded BMG Entertainment International, operating in 17 countries.
1994 - Bertelsmann Music Group changes its name to BMG Entertainment and it buys Private Music. The company now has more than 200 music labels in 53 countries.
1996 - BMG Entertainment gains 20 per cent minority interest in Zomba Group of Companies record division.
2001 - BMG sheds its non-core business, including Record Clubs and Manufacturing. BMG Entertainment is renamed simply as BMG. It exits underperforming markets, reducing the scope of its operations to 41 countries.
2002 - BMG gains remaining 50 per cent of J Records and forms RCA Music Group under the leadership of Clive Davis. BMG acquires Zomba Music Group.
2003 - BMG dismantles regional structure and American Idol earns first Platinum award.
2004 - BMG forms BMG North America under the leadership of Clive Davis. Arista Records is folded into RCA Music Group. BMG forms Zomba Label Group.
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