Inflight Magazine of Brussels Airlines

Business trends

Boyd Farrow rounds up what’s happening in the business world across Europe

Image Rex Features
Illustration Jason Pickersgill / Acute Graphics

Radar

Private equity in a spin

While the recorded music industry is in the doldrums, the music rights business continues to thrive: old hits steadily generate revenue when they’re used in movies, commercials or as ringtones.

Which is why canny private equity giant Kohlberg Kravis Roberts & Co (KKR) has created a joint venture with Germany’s BMG Rights Management, whose parent, Bertelsmann, saw its operating profit plunge 54% in the first quarter of 2009, making it harder to pay its €6.6bn debt. Moreover, Bertelsmann needs to keep investing in new ventures to compensate for declines in its books and magazines.

Since last October, BMG has snapped up lots of small music rights catalogues. In May, it bought the rights in German-speaking Europe to Roy Orbison’s songs, including Pretty Woman, from his widow, Barbara. In June it bought the rights to the catalogue of resurgent Norwegian pop trio A-ha. It has also acquired rights to the Kylie Minogue catalogue in the UK.

BMG hopes to buy smaller publishing outfits and bundle rights so they’re easier to distribute digitally. Nokia, for example, is giving away music downloads with some handsets. Bertelsmann’s chief financial officer Thomas Rabe said in a statement that with up to €250m from KKR, “we will be able to actively participate in the expected market consolidation”.

Not really…

Drinking buddies

Tuscan farmers are furious that the German subsidiary of Swiss food conglomerate Katadyn is selling a powdered version of its precious chianti, which by definition can only come from a 7,000-hectare area between Florence and Siena. The company near Frankfurt, which makes ready-made foods for hikers, has dismissed the complaints, saying it makes no mention of chianti on packets of its Trek n’ Eat Drinks Powder, designed so “mountaineering gourmands no longer have to forego a glass of red wine after conquering a peak”. Katadyn spokesperson Stefanie Dietrich says: “We’re well aware we’re not even permitted to call the product wine. No grapes were used in its production, it’s simply a product that is flavoured to taste like wine.”

The drink has an alcohol content of around 8%, a little weaker than normal wine – probably no bad thing if you’re close to a cliff. Astonishingly, the product appears to have been on sale for eight years without the Italians realising. Next year, however, Katadyn will take its wine powder off the market and introduce a product that could anger the Germans instead – beer powder. Ironically, there are plans to limit the amount of chianti classico released to stabilise prices in the economic downturn.

Growing gains

Green giant comes home

The Chinese have taken to Italian luxury brands, such as Prada, Gucci and Giada. If you don’t recognise the last name, there is a reason: the minimalist label created by Florentine designer Rosanna Daolio was launched in 2001, but the company has had a very strange route to prominence.

In 2005, Daolio was introduced to a representative from RedStone Haute Couture, the Shenzhen-based holding company that introduced Valentino, Yves Saint Laurent and Salvatore Ferragamo to the People’s Republic. Giada – the Italian word for jade, China’s most talismanic gem – has been so successful, there are now 28 boutiques in the country. According to Women’s Wear Daily, turnover is increasing by at least 10% each year, making Giada one of the fastest growing luxury brands in China.

Finally, a store is being readied for Milan – where Giada has its headquarters – in 2011, with boutiques envisaged throughout Europe by 2016. Daolio insists her brand is still Italian, stressing that much of the production takes place there, while textiles are sourced from Italy and other western European countries.

Why are we here?

Buying more stuff we don’t need

According to a global survey by Brussels-based World Federation of Advertisers and The Nielsen Company, 72% of consumers agree that advertising helps stimulate the economy, while 68% say it contributes to the development of better products and lower prices by encouraging competition.

The WFA and Nielsen undertook The Value of Advertising study to “provide a better understanding of consumer perceptions of the benefits of advertising” and to demonstrate these advantages to policymakers and key opinion formers. Based on a poll of 25,420 adults in 50 countries, the two organisations reported that 81% recognised that advertising helped to fund a wide range of sporting and cultural events. This figure reached 80% with regard to the positive role it played in creating jobs, while 67% of respondents acknowledged that commercial funding supported the generation of media content.

However, in western Europe, just 48% of people regarded advertising as being entertaining, while 49% said it enabled them to make more educated decisions.

Drawing board

Chocolate 2.0

Those who have dedicated their lives to finding a cure for cancer or even the pursuit of perfect salon hair have been dealt a cruel blow. The most earth-shattering scientific discovery of the century may have been made by Zurich-based Barry Callebaut, the world’s largest chocolate producer, which claims to have created a product that has up to 90% fewer calories than regular chocolate and won’t melt under 55°C.

The Swiss company hopes this discovery, which it calls Volcano, will ratchet up sales in both the diet-obsessed west and the increasingly important emerging countries, where the searing heat has scorched meaningful expansion plans. In the past year, chocolate sales in the eight largest western European countries were down 2%, while in the elastic-waistbanded US consumption fell by 8%.

Barry Callebaut wants to target India, China and southern Europe with Volcano as soon as possible. The company’s chief head developer, Hans Vriens, predicts that by 2012 such speciality products may make up a double-digit percentage of the company’s production volume.

Traffic report

Driving a hard bargain

While many financial traders have had to sell their Porsches in the last few months, the car company’s ousted chief executive Wendelin Wiedeking managed to leave the company with a €50m golden parachute.

Needless to say, the size of this payoff has proved controversial, even though Wiedeking was offered the full €140m he was entitled to under the terms of his bizarre contract and pledged to donate half the amount he did receive to charity. However, Deutsche Bank’s Josef Ackermann bowed to public pressure and waived his right to a €12m bonus and Peer Steinbrück, the outspoken German finance minister, is braying for the pay of top managers to be pegged at €500,000 a year.

Nevertheless, Wiedeking will have to make some life adjustments: his salary topped €80m last year. In 1993 when he took the top job, a nearly bankrupt Porsche offered him €1m a year and 1% of the profits. Wiedeking promptly turned Porsche into the most profitable car company in the world. However, a series of spectacular stock-market deals went sour when the financial crisis began. After struggling to refinance debts of €10bn and having seen its market value plunge in the past two years from €27bn to €7.2bn, Porsche will now emerge as part of Volkswagen in a deal that Wiedeking bitterly fought against.

Upgrade your trip

Holy tablet

Next month, Apple hopes to launch a portable computer that some in the entertainment industry believe will spark a bigger revolution than the iPod. The touch-sensitive computer will have a screen that measures up to 25cm diagonally – handy for watching movies on business trips – and will connect to the internet.

It’s expected that Apple will tie up a slew of content deals for the device. According to recording industry executives, Apple plans to use the larger screen to offer new services such as interactive booklets and liner notes similar to those that come with CDs. Book publishers have also been in talks with Apple and are optimistic about being included.

It’s thought the computer could therefore rival Amazon’s Kindle, the Sony Reader and the upcoming device from Plastic Logic. Video game publishers also claim they could quickly optimise existing games for a hardware display that shows off graphics-intensive content. The new machine is expected to cost between €450 and €700.

Radar

Basket case

Identikit supermarkets on every street are a bane of many European cities, but the Russian government believes it has come up with a solution: a proposal to curb all food retailers from exceeding nationwide sales of RUB 1bn (€20m). The government also wants to ban chains from buying or leasing any new stores if they also control a quarter of the market in Moscow, St Petersburg or any other cities and surrounding areas.

A furious X5 Retail Group, owner of Russia’s largest supermarket chain Perekrestok, says this could halt the development of the country’s retail trade because RUB 1bn is roughly the amount five or six stores could earn annually. Retail food sales topped RUB 1tn in Moscow and RUB 200bn in St Petersburg last year.

Unfortunately for X5 Retail, Prime Minister Vladimir Putin made a rare trip to a Perekrestok store last month and decided the prices were too high. Yevgeny Fyodorov, chairman of the Economic Policy and Entrepreneurship Committee, now says “it is better for consumers to have many small chains than one big chain”.

This new attitude could have a massive impact on foreign giants such as France’s Carrefour, which opened its first Russian store in western Moscow in June following an investment of €8m. The retailer planned to open two more stores by the end of the year. Meanwhile, US giant Wal-Mart has offered to buy retailer Kopeika. Tatyana Prokina, an analyst at VTB Capital, has claimed that Russia’s supermarkets could be reduced to a “system of street food stalls”.

Traffic report

The Czech’s not in the post

The number of Czech companies filing for bankruptcy has more than doubled in the first half of 2009, partly owing to the global downturn but also because of a new insolvency law that has considerably streamlined the process by reducing red tape and even allowing companies to file for insolvency online.

While the act may have simplified the process for companies legitimately seeking bankruptcy, analysts say it has allowed some companies and their nervous creditors to seek insolvency prematurely rather than looking for a real solution. In the first half of 2009, 4,021 insolvency proposals were filed, almost 58% more than the same time period in 2008, according to the international business monitoring firm Credit Reform.

More telling than the year-on-year rise were June’s record 891 insolvency filings, the highest number of petitions filed in a single month in the history of the country’s insolvency register.

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