Thomas Rabe

This interview originally appeared in the MIPTV 2015 issue of World Screen.

What do American Idol, Fifty Shades of Grey, Good Times, Bad Times, The Cat in the Hat, Stephen Hawking’s A Brief History of Time, Scènes de Ménages, The Da Vinci Code, Stern and Got Talent all have in common? They are all TV shows, books or magazines published, produced or aired by companies belonging to the German media giant Bertelsmann. And John Legend just won an Oscar for his song “Glory,” the rights of which are owned by BMG, also part of Bertelsmann.

Such a broad range of properties illustrates how far-reaching this media company is. What started as a company specializing in printing religious works in the sleepy town of Gütersloh in 1835 has diversified into journalism, broadcasting, television production and business services. Bertelsmann’s operations have expanded far beyond Germany, with offices around the world.

Thomas Rabe has been chairman and CEO since 2012 and prior to that, starting in 2006, was chief financial officer. He heads a media behemoth that encompasses a number of companies. The RTL Group, a leading broadcaster in Europe, has interests in 49 television channels—including RTL Tele­vision in Germany, M6 in France and RTL 4 in the Netherlands—and 29 radio stations. The group also owns FremantleMedia, one of the largest producers and distributors of content outside the U.S. Penguin Random House is the largest trade book publishing group in the world, and every year it publishes about 15,000 new titles and sells 700 million books, audiobooks and e-books worldwide. The printing and publishing company Gruner + Jahr reaches readers in some 30 countries with more than 500 media activities, magazines and digital offerings. BMG holds the rights to the music of recording artists such as Elvis Presley, Santana, Mick Jagger, Pink and Alicia Keys. Rounding out Bertelsmann’s holdings are Arvato, a provider of B-to-B ser­vices; Be Printers, which offers print and communication services; and other corporate investments.

Although Bertelsmann is heavily invested in traditional media, Rabe has made digital transformation one of the company’s strategic priorities. In fact, the RTL Group is making programming available on screens of all sizes, offering video on demand, catch-up TV services and second-screen apps. FremantleMedia has several online video networks and is investing in digital content. Penguin Random House publishes thousands of e-books in multiple languages. Gruner + Jahr makes magazine apps and is creating communities online for people with specific interests, such as cooking and parenting.

Bertelsmann’s digital and growth strategies are paying off. Revenues for the first nine months of 2014 were up 4.3 percent year-on-year to €11.82 billion ($13.25 billion), reaching their highest level in seven years, with operating EBITDA at €1.48 billion ($1.66 billion).

Besides ensuring that the company’s assets live comfortably in the digital world and meet consumers’ needs, Rabe is also focused on international growth, particularly in China, India and Brazil. He talks to World Screen about his vision for Bertelsmann.

WS: Despite the challenges, what opportunities does digitization offer Bertelsmann?
RABE: As I see it, the biggest opportunity resulting from digital is that the characteristics of digital media are often superior to the features of analog media. Consider the concept of availability—anywhere, anytime—consider mobility, consider social, consider interactivity.

The second important thing is that digital drives media consumption. We see that the value of professionally produced content has never been higher than today, and that user-generated content is a fantastic opportunity for us as a professional media company to discover new content, new talent, new songwriters in all of the areas we operate in. There are some pretty prominent examples, i.e. the success of Fifty Shades of Grey, which actually did not get its start at one of the large publishers. Overall, the media landscape has never been so comprehensive, varied and interesting as it is today.

What also becomes increasingly visible as digitization progresses is that production and distribution costs are greatly reduced. The same holds true for barriers to entering new markets. And at the same time, digital also helps us to establish direct-to-consumer relationships. People are spending more time with media than ever before. This is very good news for content companies.

I’m not going to deny that there are some significant challenges. First, the unbundling of media content, which is very visible in music but increasingly also in other media. Second, piracy. And finally, the strong market positions of e-tailers who distribute content around the world. But overall we have every reason to be optimistic, as can be seen from looking at our various businesses.

WS: Would you give some examples of how Bertelsmann’s books, print media, music, tele­vision and programming assets have entered the digital space?
RABE: The development varies from one media genre to the next. In the TV business, RTL Group’s families of channels have been quite resilient to fragmentation so far, establishing complementary families of channels. The use of linear TV is still very high, so television will remain an indispensible vehicle for large-scale ad campaigns in the foreseeable future. In addition, as television goes HD, RTL Group has successfully established a second revenue stream by getting paid for the signal it provides to platform operators.

But of course the various types of online video are becoming increasingly important. RTL Group’s video [offerings] across all channels already register 5.3 billion views a month. These are the kind of usage figures that, apart from RTL Group, only the biggest American players generate. We have built a strong presence in nonlinear TV in a number of ways: Our channels have expanded their online catch-up TV services. Our production company FremantleMedia produces web originals for online platforms such as Munchies, a joint project with VICE Media. And we have significantly invested in multichannel networks like BroadbandTV and StyleHaul, as well as in an online video platform named SpotXchange.

In the book market, the e-book has already become established as a very robust and highly profitable business model for the digital age. In 2013, Bertelsmann and Pearson formed the world’s largest trade book publisher, Penguin Random House. Penguin Random House not only sells 700 million books and publishes 15,000 new titles per year, it is also well resourced to lead the industry’s digital transformation. Overall, our imprints earn approximately one in every four dollars with e-books.

A major reason why the transition from physical to electronic books has been relatively smooth is that there was an efficient ecosystem right from the beginning. As soon as e-books were launched at scale, our readers could choose from a variety of titles, a number of e-tailers, and various reading devices. This resulted in a high willingness to pay, in contrast to magazines and music, that is, where formats and ecosystems have only emerged in recent years to properly structure the market. Apps and e-magazines now open up additional opportunities for print media; stores and streaming services for music offerings.

WS: Bertelsmann is primarily a content-producing company. Do you feel enough is being done to combat piracy?
RABE: The protection of intellectual property is a fundamental issue that affects all creative works and content, which is why it is essential not only for Bertelsmann, but also for the artists, writers or producers we represent. Effective IP laws and enforcement are necessary to protect the creative industries and ensure diversity and quality of content. The creative industries are a major economic force, providing millions of jobs, and they make an important contribution to society as well as culture.

WS: Bertelsmann was built on the strength of its books and magazines, and later on its music, television and production assets—all considered traditional, analog media. What has been the company’s strategy in moving its assets into the digital world?
RABE: Bertelsmann is an active player in digital media and ser­vices. RTL Group is the most digital TV group in Europe. Among trade book publishers, Penguin Random House is the worldwide leader in e-books, both in terms of the number of titles available—more than 100,000—and in terms of total revenue. Our B-to-B ser­vices provider Arvato serves many global IT and high-tech companies like Google and Microsoft.

So, Bertelsmann is primarily a content and services company—we are not and we will not become a technology company. Although we do need to have a comprehensive understanding of new technologies, our activities will continue to center around the work of our artists, authors, producers, songwriters and editors—in short, around creativity. However, technology and digitization offer great opportunities for enhancing our products and reaching more customers.

Put in a wider context, digital transformation is one of our four strategic priorities, the other three being strengthening the core, establishing and expanding new growth platforms, and generating a higher share of revenues in high-growth countries such as China, India and Brazil. Our strategic objective is to make Bertelsmann a faster-growing, more digital and more international company.

WS: Given the problems the music industry faced making the transition to the digital world, what is the state of the music industry today? What growth opportunities do you see for BMG?
RABE: The music industry has been massively disrupted since the late ’90s, with digitization causing piracy to unfold and albums to unbundle. In contrast to books, it took several years to establish an e-music ecosystem. First it was Apple’s iTunes and then streaming services that stabilized a recorded music market that had been in decline for 15 years.

The music publishing market, however, has grown slightly over the same period of time, as it benefits from a much broader range of rights. Against this background, Bertelsmann deliberately pulled out of the traditional recorded music business, selling our 50-percent shareholding in Sony BMG in 2008. We felt that both the structures and behavior patterns of the market were not capable of reform. Instead, we built BMG as a greenfield venture with an artist-centric services model and an all-rights approach—master rights, publishing rights, audiovisual rights. Six years after its launch, BMG has become the fastest-growing start-up in the history of the music industry. Today, we are already number four in the market and administer the rights to more than 2.5 million songs. BMG has a lineup of 70,000 artists and songwriters, is present in the ten largest music markets and scored 53 Grammy nominations in 2014.

WS: If you are looking to expand Bertelsmann through acquisitions, what qualities are you looking for in a company? What types of companies complement the ones already in the group?
RABE: We have defined clear investment criteria, which we apply to all of our new businesses, such as growth potential, digital opportunities and scalability. Investments into digital therefore have been a priority for us over the last few years.

BMG and RTL Group [have made] acquisitions in the fields of MCNs [multichannel networks] and online video advertising. Additionally, we have invested in fast-growing services businesses driven by digitization, for example e-commerce services and financial services. Besides that, we are strengthening our footprint in rapidly growing countries like Brazil, China and India. That’s why Penguin Random House last year took over the book publisher Santillana, which has a strong presence in Latin America.

At this time, education is a particularly exciting field for us. Our plan is to build an education business of size, and to establish education as our third mainstay of income alongside media content and services. In particular, we are interested in three segments: e-learning, universities in the health and human-sciences sector and higher education ser­vices. All these markets are fragmented, fast-growing and driven by global megatrends like health, outsourcing and digitization.

WS: Because parts of Europe are economically challenged right now, are you looking to invest in or acquire businesses beyond Europe?
RABE: We are increasingly looking beyond Europe. However, this has less to do with what’s happening with the economy in Europe right now, and is more part of our strategy for setting Bertelsmann up in a way that will fundamentally enable higher growth.

Europe is our home continent and there are some attractive investment opportunities, especially in the services sector. But the U.S. market is not only the largest and most innovative media market in the world—it is already our second most important market in terms of revenue contribution. And it is our primary investment focus right now, along with emerging markets like Brazil, China and India.

The BIC countries have significant growth potential in media, services and education, driven by increased domestic demand from the emerging middle classes. There is a significant increase in consumption—especially in the sectors Bertelsmann is interested in.

We have been present in these countries for decades, scoring some notable successes: Penguin Random House is the largest English-language publisher in India; Arvato is a leading services provider in China; and FremantleMedia is present on local TV screens with worldwide formats like Idols, Got Talent and X Factor. We have set up corporate centers in Beijing, Delhi and São Paulo as well as investment funds focusing on digital businesses and education. Our Bertelsmann Asia Invest­­ments (BAI) fund in China is highly successful, with more than 40 investments in companies such as BitAuto, the largest car marketplace in China, and Mogujie, the country’s largest female shopping community.

Our objective is to increase our revenues in Brazil, China and India to €1 billion ($1.1 billion) within the next five years by expanding our global content businesses and our B-to-B services businesses, and by building education businesses.

WS: Technology is constantly offering up new screens and devices on which to enjoy books, magazines and TV programming. How are you making sure Bertelsmann keeps pace with new technology?
RABE: We are pursuing different approaches. First of all, we have first-class people with a deep understanding of content, services and technology. And we train our people, because I think we cannot do enough to foster a digital mindset in everything we do. In 2013, we held an international conference focusing on digitization, bringing our top 200 management representatives to Silicon Valley to meet with the world’s leading tech companies. We followed up on that last year with a similar event in London dedicated to creativity and innovation.

But we are not only partnering with global IT and tech companies; we also invest in up-and-coming, disruptive digital businesses. I just mentioned that we are very active as a venture capitalist in the startup scene—and this is not only through BAI, but also through Bertelsmann Digital Media Investments (BDMI) in North America and Europe. In total, we have invested in 80 young companies—in Europe, the U.S.,  Brazil, China and India. These investments give us firsthand access to technology trends and improve our understanding of the resulting threats and opportunities.

On this note, the magazine Global Corporate Venturing recently ranked Bertelsmann as the second most influential corporate venture in media, well ahead of U.S. media companies and miles ahead of all other European media companies—an accom­plishment we’re very proud of as an established and traditional company. On top of that, it’s great fun to work with external entrepreneurs who want to put their ideas into practice, and to share Bertelsmann’s scale and resources with them. This way, I believe it’s possible to create a “small-company feeling” even in a group the size of ours.

WS: Does the ever-evolving media landscape require a certain type of management? If so, how have you built your leadership team? How would you describe your management style?
RABE: There are several important factors in managing a complex and highly diversified group like Bertelsmann. It’s important to delegate responsibility, which basically means selecting the best people, empowering them and providing them with the right incentives. I am fortunate to be able to rely on a team of many outstanding colleagues who have done everything they can to support me daily since I took office.

We have deliberately strengthened the diversity [of our management] in recent years. As a media company that thrives on a variety of products and opinions, the diversity of our management should reflect the diversity of our customers and markets. One of my first decisions as CEO was to set up a Group Management Committee to advise and assist the Executive Board on important matters of corporate strategy. Of our 14 Group Management Committee members, five are women; the members come from six countries and from different age groups. We see diversity not as an academic matter, but as a business matter that we have recognized.

Looking back on my first three years as CEO, I can also say that the key to our transformation has been getting everybody involved at a very early stage. Being close to our businesses—and close to our business leaders—is of utmost importance to me. That’s why active internal and external communication is a must, especially for the CEO of a media company. We have to explain what we are doing and why we are doing it. This is one of the reasons why I started using Twitter last year.