THE WORLD ACCORDING TO ROLF

If one figure personifies change at the German conglom, it’s Rolf Schmidt-Holtz. The 53-year-old former journalist was officially named President/CEO of Bertie’s music properties in early January by top dog Thomas Middelhoff. He also continues to serve as Chief Creative Officer at the conglom.

Middelhoff formally announced the appointment soon after the death of his previous appointee, Rudi Gassner, who died of a heart attack last Dec. 23.

Schmidt-Holtz, who proudly admits he’s not a music man, took over BMG in the midst of unprecedented upheaval. The company’s tribulations included an ill-fated merger attempt with EMI, the ouster of well-known topper Strauss Zelnick, the departure of mainstay Michael Dornemann, problems with key executives at Arista and the parent company’s highly controversial deal with Napster. But the native German insists he’s up for the challenge.

He reorganized BMG’s sprawling worldwide operations, placing the company’s North American operations under veteran music guy Bob Jamieson and naming Jack Rovner to head up RCA. Meanwhile, L.A. Reid continues running Arista after replacing legend Clive Davis, who has wasted no time clicking at startup J Records, a joint venture with BMG.

Schmidt-Holtz, who has worked in Bertelsmann’s executive ranks since the mid-’80s, engineered the merger of the company’s TV programming group Ufa with Belgian broadcaster CLT in 1997; that company would become one of the largest TV and radio broadcasting groups in Europe. He served as CEO of CLT-Ufa until 2000.

Despite his non-music background, the affable executive hopes to transform BMG back into a pure music company. “Content is the key currency in media business,” Schmidt-Holtz, asserts, as he familiarizes himself with BMG’s hits and hitmakers. He recently took time out from dying Pink’s hair blond to talk with HITS’ resident pinko, Marc “Of Zorro” Pollack.

Let’s talk about the state of the music industry today. How can we pull ourselves out of this slump?
I would not say the music industry is in a slump. Of course, we are in a difficult time because of a difficult economic climate, online file-sharing and the other illegal Internet developments. Our current goal is to find great music across diverse borders. We may have lost a little bit of that focus over the years because we were distracted by addressing the issues of new distribution platforms. Our task is to find better ways of selling great music. In North America, we have overhauled our operations across all labels to better unearth potential big sellers.

We are thinking in a new way about selling music. Do you believe that the business is still hit-driven?
The hit single has always been what drives our business. I recognize the importance of records that travel around the world and can work in several regions at once. Those are the kinds of hits that we must make our priority. If you take into consideration the file-sharing phenomenon, consumer attitudes toward the market have changed. They seem to concentrate on just a few tracks and no longer on full albums. We, in turn, must focus on the best possible songs, bringing them to the audience in whatever way possible.

The music business has become very similar to the film business in aiming for huge first-week sales. Does the current marketplace allow for the long-term development of acts?
I’m absolutely sure it can. Unfortunately, however, big sellers don’t sell for as many weeks as they once did. There are exceptions, though. Look at Alicia Keys, Dave Matthews and Dido. They all show incredible commercial staying power. And look at Martina McBride at our label in Nashville; she’s been on the country charts for months. These are examples of what we can do and what we can develop.

BMG has been one of the leaders in making Internet moves through digital distribution, subscription services and other online ventures. How much longer until these moves make a significant impact?
First of all, as you may already know, I have changed the strategy within BMG regarding the Internet. We focus on music today, not manufacturing nor online music distribution—that’s not our business. Our business is to find and develop artists. To that end, I have basically closed down a lot of these online enterprises. It is an important part of the business, but it is still a developing one. We will be licensing our music rather than trying to be retailers and creating distribution platforms.

Do you have any second thoughts on your involvement with Napster?
Keep in mind that Bertelsmann has a strategic partnership in Napster, not BMG. Having said that, I really think the Napster move was a very good one, and I’ll tell you why. Even though Napster lost some of its audience over a period of time, there is still a huge demand for music. Napster demonstrated the incredible demand for music in formats other than CDs. However, we must protect the copyrights of our creative colleagues and the artist community.

Didn’t Napster devalue music in the eyes of consumers, though?
If anything, we have learned from Napster the incredible passion and demand for all kinds of music by a diverse collection of fans around the world. We support Napster’s efforts to become a pay service. I hope, with Napster’s core user base, there will be a huge demand that will benefit not only the music industry, but also the artists. The pay Napster, for a reasonable price, will bring back file-sharing in a legal way. However, on a related issue, we cannot afford to encourage CD burning, which also violates the rights of our artists.

Can you put a time frame on when such online advances will have any significant role in the overall music revenue stream?
That’s very difficult. I’m quite sure that if you find a reasonable business model for a service like Napster—where the kids will accept that they can’t just download music for free—a potential for large revenues exists. I’m absolutely sure if the subscription price is reasonable and if the technology is good, then there are millions and millions of potential subscribers. Studies show that if we meet these criteria, people will line up for the services.

What was the mandate given to you by Thomas Middelhoff upon taking your job?
To build a team of executives and managers that could elevate BMG to new levels of success. The character, motivation, openness and accountability were missing here. I’m really trying to bring to BMG what I’ve experienced in my former business ventures. I’ve worked in almost every corner of the media world. I’ve been a reporter, TV anchor, magazine editor and publisher. I’ve led very successful companies whose operations were vastly improved and able to deliver profits. In 1995, I took over a German TV company with an annual loss of $65 million. Together with a team of really good colleagues and talented professionals, we expanded into what is now the RTL Group, which is the No. 1 TV and radio broadcaster in Europe, reaching 250 million worldwide viewers every month. In my five years as the company’s CEO, we achieved cumulative results of nearly $1 billion. The reason for the turnaround is not because I am a genius. [Laughs] Well, of course I’m a genius. I had very good, talented people around me and we had an open, creative atmosphere. We looked forward to being in the office every day, and in the end, it was fun. The lesson I want people at BMG to learn is to work hard as a team but have fun and not take ourselves too seriously.

If you look at UMG today, their top executives have remained in place. How important is stability in an organization?
Continuity and stability are not values in and of themselves. They are important only if you have the right team in place. Our turnover at BMG was largely due to a realignment that would lead this company to a more profitable future. For example, we have spun the BMG Direct Music Club and CD manufacturing off to other Bertelsmann divisions. And, we have significantly de-emphasized matters such as online distribution and our dot-com investments. Our focus is now clear. We are the Bertelsmann Music Group. We dropped “Entertainment” from our name because our focus is one thing: music. We are backing some of the top music executives in the business—L.A. Reid, Clive Davis, Jack Rovner, David Weyner and Joe Galante. We want them to find the next big act, the next top artist, the next Pink, the next Strokes, the next Alicia Keys, the next Martina McBride, and so on.
BMG today runs on three key guiding principles. First, be honest about our strengths and weaknesses—truly honest. Second, tell executives and managers what I expect of them and then support them every way I can. And third, free up creative executives to do what they do best—employ their best instincts to pick music that sells. All of this is designed to create a team spirit. Bring everything you have to the party and contribute—it’s always better in comparison to what you can do alone.

What do you value most in your executive team? Do you encourage competition among them?
Someone who runs a company or a label has to be competitive, but I want my people to compete externally rather than internally. For me, encouraging competition within BMG is not the best way to motivate people. I feel a better way is to make sure we have a common goal that everyone is working toward. For example, BMG executives in our four regions around the world are dependent upon each other for finding and developing the artists who can sell across regions. So, if executives understand that they are an important part of a whole, things run smoother.

You have several larger-than-life figures like Clive Davis, Clive Calder and L.A. Reid in the BMG fold.
I learn a lot from these guys, and I really admire them for what they have done for the music business. I admire people who can find and develop artists. What more can you ask for than to be in contact with great, creative talents like them? It amazes me that the Clives keep the same youthful attitude that they had when they were 30.

It’s been almost a year since you assumed your current post. What stands out in that year? What do you think about the music business?
I like it more and more as each week passes. As you can imagine, the first part of my tenure was dealing with our internal restructuring, which was absolutely necessary. Then I had to deal, sadly enough, with layoffs. And that’s not what I like to do. Instead, I would like to build a company where we hire the best in the business and acquire more properties.

How do you now compete with the likes of a UMG and bolster your marketshare?
I don’t spend my days thinking about competitors—that would be distracting. I prefer to encourage our A&R guys to search for new artists. That’s what we have to do. When I look at our current and upcoming releases, I’m very pleased with our direction: Pink, Usher, The Strokes, Dido, Alicia Keys, OutKast and Busta Rhymes. With a lineup like that, we have a lot to offer music fans. It’s not the processes or the restructuring; it’s the music that counts. Successful music executives attract successful artists. And if artists feel at home at BMG, then they attract other artists. That’s what BMG is about.

Any other artists you’re particularly excited about?
I’m excited about The Strokes. When I first heard The Strokes, I thought, “Hey, there’s something special here, something different!” They reminded me a little bit of the Velvet Underground. Also, Busta Rhymes, OutKast, Natalie Imbruglia or even guys like Leonardo or Estopa in Spain. It’s not only U.S. music that I am excited about; we have wonderful artists all over the world.

Are you satisfied with the way the international company is performing?
I’m never happy! But I’m more and more confident that the executives understand each other. Believe me, it’s very often a communication problem. For a long time, the U.S. and international companies didn’t talk to each other. But, for the past nine months, they’ve realized how dependent everybody is on each other. Once you get past the language barrier, you start to make international marketing far more efficient.

Who do you admire, both in and outside the industry?
Basically, I admire artists; I admire songwriters. I have a lot of respect for Doug Morris, Roger Ames and Tommy Mottola and Alain Levy. You have to admire their success.

What do you see yourself doing in five years?
I hope I would be in a situation where you called and asked me for an interview, as the head of the biggest music company in the world.

Is there one deal or one hiring that you really wish you would have made, or one that you wish you didn’t?
Deal-making is my job and, like everybody, I have done well and not so well in the past. But what I really wish I had is L.A.’s or Clive’s talent for identifying talent and developing artists into worldwide superstars. That is the really exciting part of the music industry.

If you had to start a record company today, who would be your top three executive picks that you would make?
Would you give me money to start a label? If so, let’s do something together. I wouldn’t waste your money. But seriously, if I were to start up today, I’d insist on taking my BMG executives with me. I work with some of the best in the business.