Germany’s burgeoning music industry defies the trends

Having overtaken the UK as the world’s third largest music market, Germany must be doing something right – but what is it that has elevated the country’s industry to the status of a true global player?

Ten years ago few would have expected Germany’s beleaguered recorded music industry to overtake the UK in terms of revenue. At the time, CD burning was rampant, retailers were closing en masse and record companies were haemorrhaging staff. Few commercial or public radio stations supported new talent, while A&R was largely marketing-driven with little in the way of long-term artist development.

As if this was not dismal enough, there was little sympathy from central government, which stalled the implementation of more robust copyright protection, while also failing to respond to pleas for radio quotas and other remedies it was hoped would alleviate the situation.

Commentators have been quick to attribute the turnaround to German consumers continuing to favour more profitable physical releases [which account for 81% of revenue compared to 67% in the UK] over downloads [respectively 13% and 25%], as well as the healthy state of the country’s economy. However, Dieter Gorny, chairman of Germany’s IFPI affiliate the BVMI, is bullish about the reasons.

“It’s not the slow uptake of downloads, but the slow downtake of physical product that caused the relative strength of the German market,” he says.

And far from prompting an outbreak of schadenfreude on the other side of the North Sea, the figures have have been met with disinterest by some within the industry.

“[Overall] there has been little response to the news,” says Alex Richter, managing director of Berlin-based booking agency Four Artists. “Germany will always be an important market for international acts.”

For many, the country’s relatively good showing in 2010 is the result of several other factors which include adapting business models to the changing market, an improved radio landscape and a continuing focus on developing long-term acts.

“The industry has grasped the fact that it needs strong and solid artists,” says EMI GSA’s chairman and head of commercial development, Wolfgang Hanebrink. “And to achieve this sometimes requires more time than the life cycle of an album.”

Although he adds that part of the mix includes fast moving, hit-based acts – often spawned by TV talent shows such as Deutschland Sucht Den Superstar and X Factor – the chairman also cites the growth of quality and diversity of homegrown talent as a significant development in recent years.

According to IFPI figures, domestic productions accounted for 49% of album chart share in 2010 [international acts took 48.6% and soundtracks 2.4%] having risen continuously since 2001 when they made up only 29.5%.

“Thanks to being able to perform live, German bands and artists across all genres are able to build a stronger fanbase,” says Richter. Four Artists has carved out a strong position in the market with domestic acts ranging from Nena to Tiefschwarz, but in recent years has expanded its roster to include international artists such as Icelandic seven-piece Hjaltaín and New York’s Balkan Beat Box.

And local companies are capitalising on Germany’s appeal for acts from foreign territories.

“Now that fewer bands have record deals, more try to sign territory by territory,” explains Ulysses Hüppauff, founder of Halb Miete Management. His roster includes Finland’s Apocalpytica, Heather Nova from the US and Sweden’s Royal Republic.

Although Warner and Universal have long acted as an international springboard for acts from abroad, there are signs that this is a growing trend. The latter’s international exploitation department is dominated by foreign bands such as Volbeat [Denmark], Milow [Belgium] and Katzenjammer [Norway] – signed directly to the Berlin-based affiliate and augmenting a release schedule which includes local stalwarts such as Tokio Hotel, Rae Garvey and Rammstein.

Some UK industry figures also see Germany as a useful gateway into other markets.

“Securing key press and radio in Germany bleeds into neighbouring territories – Switzerland, Benelux, France – and in turn generates sales across the whole of Europe,” says Alex Knight, managing director of Brighton-based FatCat Records, whose signings include Düsseldorf-based Hauschka

He cites conditions in the live sector as particularly favourable, with higher fees obviating the need

for label tour support, and a large network of venues and promoters enabling acts to develop a fanbase through touring.

Although Jens Michow, president of the concert promoters’ association IKDV cautions that live revenues for 2009 might see a slight decline – and he bemoans an obligatory VAT exemption which prevents promoters claiming back money – he is upbeat about the government’s abandonment of withholding tax last year.

“For many years this was the artists’ worst enemy in Germany,” he says.

According to Jens Markus Wegener, managing director of Hamburg-based publishing company AMV Talpa, it is not just the labels and the live sector which are enjoying interest from abroad. Last year his company licensed AC/DC’s catalogue for GSA from Albert & Sons and he believes his commitment to work other acts signed to the Australian publisher helped land the deal.

“There has been a rise in confidence and German publishers are working much harder internationally,” he says. “At the same time, foreign publishers are keen to push into continental Europe and Germany provides that gateway.”

Wegener, who previously co-owned one of Germany’s largest music promotion companies, Public Propaganda, points to a resurgence in the popularity of radio accompanying the growth of domestic talent. Several years ago he advocated a quota, but like many other industry figures appears to have softened his stance.

“There are still a lot of formatted stations with small playlists, but you now have a much better chance of getting domestic repertoire played,” he says. “Radio has experienced a bit of a comeback.”

Wegener believes that this is due to a public desire for “filters” as well as a decline in the music television platforms previously offered by MTV and Viva. Moreover, there are also signs of a rapprochement between labels and broadcasters, with companies such as Sony bringing together programming bosses from leading stations to discuss ideas and proffer suggestions.

“Sony Music always seeks to strengthen the dialogue with its media partners,” explains Sony Music Entertainment Germany’s CEO, Edgar Berger.

At the same time, broadcasters such as Motor FM are seizing the initiative. Launched in 2004, the company has licenses in Bremen and Stuttgart, and is looking to secure a presence in key cities such as Hamburg and Munich. This is a particularly ambitious move, as broadcasting in Germany is controlled at regional level and securing nationwide coverage would involve dealing with 16 different bureaucracies.

With a strong onus on new music, Motor’s strategy is to use the FM broadcasts as a hook to develop stronger ties with listeners via its online presence. Moreover, managing director Mona Rübsamen has positioned the station as a platform for emerging talent across the creative spectrum to include designers, architects, writers and film-makers.

“We focus on new music but also act as an incubator for the overall creative scene, which has become a big deal in Germany over the past couple of years,” she says. Rübsamen adds that many of Motor’s listeners are unlikely to go undetected due to surveys being carried out via landlines.

There is a widespread view that the contribution made by the creative industries to the overall economy is enjoying a new-found recognition at both national and regional government level.

Leading trade events Popkomm, Reeperbahn Festival and CO Pop all benefit from public money, and the Federal Government co-funds the Initiative Musik organisation.

The latter was created in 2007 to provide financial support for artists and professionals in the rock, pop and jazz sector. Grants between €10,000-€30,000 are awarded, with 40% of the funding coming from the artist, label, management or publisher.

Its project manager Katja Hermes says that the six-person team is also actively involved in assisting with international networking opportunities at German trade events, as well as hosting showcases at international gatherings including SXSW, The Great Escape, Midem and Eurosonic.

Significantly for international promoters, Initiative Musik recently launched a fast-track grant scheme for acts invited to play outside Germany, with each band member receiving €400 towards travel within Europe and €800 outside.

However, despite his role as head of Initiative Musik’s supervisory board, the IFPI’s Dieter Gorny believes that politicians still have work to do.

“The Government should ensure a legal framework which enables the sustainable enforcement of rights in the digital environment,” he says.

Nevertheless, few doubt that music’s strong position within the creative sector is beyond dispute. And Popkomm director Daniel Barkowski believes that Berlin’s status as a creative hub is particularly powerful.

“The world is changing and it is no longer the case that a company like IBM is going to come and create 3,000 jobs,” he observes. “During Berlin’s last election all the candidates referred to the creative industries in their campaign literature.”

His view is echoed by Dimitri Hegemann, founder of Berlin’s legendary Tresor club and label.

“In 2010 there were 20 million overnight stays in Berlin with an average spend of €200 each,” he says. “Fifty per cent of visitors were cultural tourists. The historical subculture has given rise to an important economic motor.”

Significantly, Hegemann has sought to develop the brand to ensure the business’ survival, being acutely aware that many of the 70,000 people on his database are no longer up to partying for an entire weekend.

Hegemann now runs regular events for 12-15-year-olds, allowing budding DJs to showcase their skills, and he is about to launch a Tresor in Beijing. The venture will aim to develop musical partnerships between China and Germany and enjoys the support of Abeleton, a Berlin-based production and recording software company. It is to equip a studio in the Chinese venue which in turn will serve as an “academy of the electronic arts”.

A variety of companies across the business spectrum have responded by adapting their core activity, including Hamburg-based Edel. It now focuses on distribution and manufacturing, having reduced its label operation to releasing heritage acts such as Status Quo and Deep Purple. Moreover, it has diversified into video and book publishing.

Although the company also owns one of Germany’s largest digital music distribution platforms, Kontor New Media, Edel founder and CEO Michael Haentjes believes that the industry would be unwise to abandon physical formats.

“These days the biggest distribution [platform] is via piracy, which has made the business considerably more difficult,” he says, while adding that there should be a greater onus on attractive products “that are worth the money.”

Moreover, he attributes niche areas such as audiobooks, children’s albums and Schlager (a popular style of “hit” music) as a factor in buoying CDs sales, as they are less likely to be copied.

There are also signs of digital platforms becoming more accepted and while Spotify has yet to gain a foothold in Germany, local streaming service Simfy got off the ground in May 2010 thanks to equity deals with Universal, Sony and Merlin, and a licensing agreement with Gema.

It now has 1m registered users, attracted an additional €10m in finance 12 months after launch and has secured partnerships with O2, cable TV operator Kabel Deutschland and social networking platform VZ Networks.

“Streaming and subscription models are an important and elegant link between record companies and music consumers,” says Sony’s Berger, who adds that he would welcome more players in the market.

Both Berger and Universal Germany CEO Frank Briegmann recently hit out at Gema, accusing the country’s collection society of holding up a deal with YouTube. However, this is regarded as disingenuous by AMV’s Wegener. He points to an arbitration system which would allow the Google-owned platform to operate until a rate has been decided and says its reluctance to do so has led to Gema taking legal action.

“If I have a business which needs electricity, then I have to pay for it,” he says. “What happens if you don’t pay your bill? At some point it ends up in court.” He adds that the dispute is not just about royalty rates, but about getting the data so that the revenue can be distributed equitably.

The majors’ frustrations are understandable, given that German consumers are being denied the opportunity to watch video clips by domestic acts which can be freely viewed abroad.

However, they might allow themselves to take some small comfort from the fact they have overtaken the UK, where YouTube and Spotify have reached agreements and download sales are considerably higher.

Source: Music Week