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UPDATE 1-BMG/KKR music venture makes first acquisition

23 Jul 2009

NEW YORK, July 23 (Reuters) - BMG Rights Management, the music venture owned by Bertelsmann and KKR, said on Thursday it agreed to its first acquisition by buying a catalog of songs including "Who Let the Dogs Out" and "Livin La Vida Loca."
The financial terms to buy the Crosstown Songs America catalog were not disclosed, but a person close to the deal said it was around the "mid double-digit millions" of euros, or around $70 million.
Crosstown's website says its catalog of 8,000 songs is worth around $80 million. The tunes include some featured on recent top-selling albums by the likes of Britney Spears and Madonna, as well as hits from the last two decades by Ricky Martin, Celine Dion and others. Los Angeles-based Crosstown is currently owned by CarVal Investors, the investment arm of privately held U.S agribusiness CarGill Inc [CARG.UL].
German media giant Bertelsmann AG (BTGGg.F) and private equity firm Kohlberg Kravis Roberts & Co [KKR.UL] announced the BMG Rights joint venture earlier this month, saying it would be a more efficient way of managing music rights under one roof.
KKR has committed to investing about 250 million euros ($360 million) in the business in which it owns a 51 percent stake. Bertelsmann owns the remaining 49 percent. The companies have indicated they would be prepared to raise extra funds to acquire a major catalog of songs if one became available. There has been speculation beleaguered London-based private equity firm Terra Firma might be forced to sell its valuable EMI Music [LNDONE.UL] publishing catalog, the second-largest catalog of songs in the world.
Music industry-watchers are also monitoring the fallout from the death of Michael Jackson, which could see the singer's half of the Sony/ATV Music Publishing joint venture put up for sale. That catalog includes songs by the Beatles. Sony Corp (6758.T) owns the other half of the venture.
Financial and media investors have become increasingly attracted to music publishing rights as an asset class, even as the recorded music business has shrunk due to piracy and the ascendancy of digital music.
"Music catalogs are a very good investment," said long-time music attorney, Alan Bergman, of Alan S Bergman & Associates. Such investors are keen to benefit from a perceived steady and recurring cash flow from managing the rights of songs and songwriters rather than dealing with what is seen as the terminal decline of the recorded music business.
"Even if you're not lucky, publishing is a sound almost conservative investment. You're bound in the long run to get a decent return on your investment and sometimes better than that," said Bergman.
Dutch pension fund ABP was estimated to have paid around $200 million for the Rodgers & Hammerstein catalog of songs in April, while private equity firm Pegasus Capital paid an estimated $55 million for Spirit Music Group, a song publisher with rights to artists from Frank Sinatra to Madonna.

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