Against the main stream.
Entrepreneurship. Everything is different with Ulrich Kubak. And again and again. The majority shareholder of Klassik Radio AG from Augsburg broke all rules and turned a loss-making niche station into a European market leader. Portrait of a free thinker, creative doer - and a company with plenty of potential.
"This is a real game change opportunity. If our streaming service for relaxed classical music is successful with more than 150 ad-free stations, we will soon no longer be a radio company. It is a fully digital music company with worldwide rollout potential", Ulrich Kubak outlines. And if it doesn't? "We don't need an exit strategy. We think again and again and will find solutions."
When Kubak decides to implement the streaming idea in 2015, all experts of the digitalization scene say: "You can't do this alone, you need 300 men to build the technology. Better take one of the big agencies. So he starts with an external supplier and states: "They're sluggish, not very creative and ultimately don't deliver what we need." Against the advice of the experts, he largely develops the technology himself. "With a small core team and a few external service providers. We have invested millions - all from our own resources. Today, we have a highly agile technology that brings in any innovation relevant to the listener immediately."
Streaming means that the listener has access to 150 curated music stations for every imaginable mood and situation - while driving a car, having dinner or relaxing. The fact that the service has no search field, so the listener does not need to know exactly what he wants to hear, is unique. "Not everyone knows the titles or artists of the music they want. Many listeners want to hear music according to their mood. And we always have the right ones on offer," explains Kubak.
If the listener cannot specifically search for the music they want, this would also have an economic advantage for the entrepreneur. "The labels whose music we use earn a lot of money for giving users of traditional streaming services access and control over their entire music database. Our pre-curated music offer gives us much better conditions."
Thus the monthly subscription remains actually payable with 5.99 euro. The entrepreneur expects over 100,000 paying customers in the medium term. At the moment there are only a few thousand, but "there are more every day". In perspective, the service is to expand into the top ten countries that are enthusiastic about classical music "Made in Germany": "Asians love classical music from the West, children learn to play the piano, they read German literature. We, as a music streaming service that comes from this world, have every chance of being successful. We've already created the technical conditions."
So far more than 130000 users have downloaded the free app. You can listen to 34 advertising-financed channels online via computer, smartphone or tablet. If you pay 5.99 euros for Klassik Radio Select, you can also switch off the advertising for the main programme at the click of a mouse.
Kubak is thus not only setting a new standard in the radio market, but is also taking a high risk. After all, advertising revenues account for two thirds of turnover. Is someone sawing the branch he's sitting on? "Yeah, sure. I think first and foremost from the listener's point of view - some people are annoyed by advertising, so they can get classical music from us on request without interrupting advertising. We are anticipating the development of the market, there will be an individualization of the listener - and we will thus create new business fields that are much more promising for the future."
That's how Kubak ticks. Always have been. The break with traditional thinking runs through the life of the Augsburg entrepreneur like a red thread. "Questioning generally accepted truths has always brought me forward," he says. Making decisions against the mainstream has nothing to do with absolute certainty. "I'm just convinced I want to do these things. The great thing about being an entrepreneur is that I can put my ideas into practice. No one can stop me. I then look for a team that is willing to go new ways together with me and kneel in. In the end, we share the success. That's pretty nice."
Looking back: In 1989 Klassik Radio was founded as GmbH & Co KG in Hamburg. The major media houses Bertelsmann, Burda, Universal and Spiegel occupy the segment, but let the station run at a loss.
Ulrich Kubak is already an entrepreneur for the second time at this time. In 1985, as a 20-year-old and the only private person among many large publishing houses, he applied for a radio license and received it for the Augsburg region. His parents helped him with a guarantee of 25000 Marks, Kubak dropped out of school four weeks before graduating from high school.
"I knew I'd be on the road in my life as an entrepreneur and school wouldn't get me anywhere." In 1987 he founded the pop and rock radio station Fantasy, which quickly developed so positively that he was able to return the guarantee to his parents after only 1.5 years. "This was a really big moment for me."
After two years of development, the young entrepreneur is bored. The VHF license is regional, he wants more. So at the age of 22 he founded the radio syndication company FM Radio Network in 1989. The company produces radio programmes for other broadcasters, especially in the DACH region. "At the time, there was no such service provider in Germany. I foresaw that more and more new stations and thus potential customers would be added for me. It didn't bother a Hamburg station when the same program was playing in Munich."
In search of new customers, he comes across Klassik Radio. Having grown up even with classical music - his father built organs - Kubak recognizes something in the station that the owners at the time obviously don't see.
"I thought classical music was cool. I also wondered how the radio would evolve. At some point I didn't want to hear a Morning Show anymore that yelled at me with the hit mix of the 80s and 90s. Classical music, on the other hand, creates a fantastic aura, a wonderful environment. And: Classical music is heard by educated people, often decision-makers, who are also very consumer-friendly - a great target group for the advertising industry. That's the station I wanted."
A short time later, he knocks on the door of Liz Mohn, the owner of Bertelsmann Verlag. They already know each other. In 1995, Kubak sold her around 51 percent of its shares in FM Radio Network. Now he wants to buy. But Bertelsmann waves away.
For two years afterwards he tries to place his wish to buy with the other shareholders and repeatedly collects a "no". But he stays on it. Finally, Ulrich Kubak is invited to the shareholders' meeting. "Into the Honorable Mirror Building, at the top, wood-panelled. Then I told them what I would do with the station."
In fact, it convinces the old owners. He may take over 100 percent of the shares in several steps.
Kubak founds Klassik AG in 2000 and one year later takes over Klassik Radio GmbH & Co. KG. He then began to build up his company, founded a holding company, bought and founded various companies, bought back the shares of FM Radio Network GmbH from the RTL Group and restructured his company.
The Klassik Radio AG was founded in 2004, followed in the same year by the IPO - this did not exist in Germany until then either. "Media companies are often very intransparent, I wanted the opposite again," he says. He is not afraid of giving up control, with 67 percent he holds the majority as sole director in his hands and acts unchanged like a sole proprietor. With a Family & Friends programme he involved his employees, that was important to him, the rest comes into the free float.
From the beginning, Kubak has had a vision for his station. He wants to set up a worldwide new radio concept. In return, he questions everything that has so far been regarded as immovable in the industry. First of all, the results of the studies that he heard from the sellers of Klassik Radio when he bought the radio. "It said what you can't do in the classical music market. I've broken with really everything," he smiles.
For example, he reads that a station with classical music does not need news, information or weather. "We immediately started broadcasting business and financial news." He reads that a classical station is only allowed to play whole works. Kubak begins to cut classical pieces to make them radio-compatible. "We've arranged the most beautiful passages in a way we know from pop, creating a river." There are other rules he just overrides. Film music and classical music? It's a wonderful match. Electronic lounge music in the evening? Of course I do. "These were all very big ruptures that were the foundation of our success."
A listener market is slowly building up. And then an advertising market: "Unfortunately, it took ten years longer than I had planned. It was a long distance run, but it was worth it."
The biggest challenge was to convince the advertising industry. Because in the radio market there is at that time a marketer duopoly. ARD markets the public broadcasters, RMS the private broadcasters. "If you don't have the people responsible for these two companies on board, you have no chance of earning advertising revenue," says Kubak. And neither of the two agencies recognizes the attractiveness of the listeners of Klassik Radio.
So Kubak sets up its own advertising distribution. "A product as innovative as ours must be marketed with passion. We're best at it ourselves. The established advertisers were thinking of old music and old listeners. We thought of eternally young music and modern listeners." For Kubak this means: Cleaning the handles. "I went to the companies, I told them how great classical music is, that it's heard by people who are responsible, who have lucrative jobs, who are consumer-oriented and creative."
The first small budgets are coming very slowly, the breakthrough comes with Media Saturn. "They were extremely pleased with their advertising impact and we finally had a case to go to the agencies with. We had to infect them with our enthusiasm until they used at least a small budget for us."
Kubak acquires further companies and carries out the first capital increase in 2010, retaining the majority of shares. "Others may prefer to give up voting rights in such a situation rather than take on so much financial responsibility themselves. In return, they accept a loss of power. I didn't mean to. I always take full risks."
With the fresh capital of around two million euros, he is investing in growth. And strengthens his listeners' loyalty to the station by winning over well-known personalities from the world of classical music. Till Brönner works with him, as does tenor Rolando Villazón, and Thomas Ohrner is programme director. "On the radio, you get more attention with celebrities. That enriches the program. It's added value," says the entrepreneur. How he ties people to himself? "By paying them fair, treating them well and giving them a great platform. They are very free with us, we try many new ideas, that makes everyone happy."
Today, classical radio has six million listeners. Other decision-maker media, such as FAZ or SZ, have a million. Kubak knows how to use this range. It opens up business areas that make sense in the classical music and listener needs sectors and uses its own channel to advertise its products.
Many ideas would also have arisen directly from the needs of his listeners: "People called us and asked for the title we were playing. Then they wanted to go to the store and buy the CD. So we started early to produce CDs ourselves and offer them online."
Here Ulrich Kubak also breaks with old patterns. "You can get Mozart 100 times for 19.99 euros in the shops, until four CDs cost us 50 euros. The whole industry said it wasn't gonna work. To date, however, we have sold over 500000 such CD packages."
With the new streaming, Kubak will also risk this business. "The sales team mooted briefly, but streaming is the future, that's where we have to go," he convinces his team.
Even when he begins to organize concerts without stars, the reaction of the music industry is a tired waving. "That never works," he often hears. Kubak tries it anyway: "The Klassik Radio brand is the star. We organized a tour for the specially assembled Classical Radio Pop Orchestra and played it in sold-out houses."
To date, over 200000 guests have attended his concerts and paid an average of 90 euros per ticket.
Kubak is even active in the travel business with its very own model: "We have founded a new auction platform - Klassik Radio Auszeit." Hoteliers put together arrangements that are auctioned at the auction. Kubak keeps the auction proceeds, the hotel receives advertising minutes on Klassik Radio.
"It's a win-win-win situation: it's good for the bidders because they can get a bargain. It's good for the hotelier because he gets advertising in a top environment in exchange for rooms, and it's good for us because money goes straight into the company. At zero cost."
A decision made by the entrepreneur in 2015 is causing a sensation nationwide. It returns 20 of its weaker VHF licences to the state media authorities and concentrates on conurbations. A radio station that no longer wants its frequency - the asset that makes up a station - is a novelty. "VHF frequencies are foreclosing the market, nobody can get in there. The other stations want to keep this isolation as long as possible. But we also thought from the listener's point of view - the future will be digital radio, the quality is much better than on FM and the possibilities of use are much wider. I don't need those frequencies anymore. We're all about streaming and digital radio."
In other companies such a thought is discarded, discussed for years, only to discover that the world has turned around and missed the boat. "We don't work that way. Digitalization makes us much more flexible. We'll see to the second today when the handsets turn off. If that piles up in one place, we'll figure out what people didn't like. We no longer have to decide according to gut feeling, but can digitally analyse and fine-tune it with a great deal of factual support." To this day, Klassik Radio is the only station that has completely digitalized itself.
This uncompromising focus on the new technology is now paying off. Because it now enables him to establish his streaming service. "We went for IP technology (streaming) and DAB (digital radio) early on and took all the costs."
He does not understand why the major radio players have hardly taken any steps towards digitisation: "They are turning to politicians, demanding a transitional regulation of several years so that they can introduce digitisation. And they also want money from the state - we are already in the middle of the digital market with our own resources. Any other station could have done the same."
Klassik Radio then also consistently sells the digital devices itself. "It would have been pointless to say that we are totally digital, but you have to get the solution out there," he explains. Those who buy from him receive an extra bonus of up to 50 euros - depending on how expensive the radio is. Kubak earns money in this way and at the same time fires up its own business model.
The entrepreneur is currently restructuring his company. "We're growing so fast, we need a new structure." So he brings the station from Hamburg to Augsburg with the aim of bundling all activities under one roof. "Another break, a no-go for the industry," he smiles. Out, out of the cosmopolitan city of Hamburg, into the province of Augsburg. "I just don't see any locational handicap. We will offer the most modern studios, create a great atmosphere for staff and visitors and even have our own spa area for staff and a club with barista."
In Hamburg, he keeps a small studio, a bow to the big stars who regularly visit it.
He has plans for the future "more than I can ever realize. There are so many community-based opportunities and so many great little companies that don't come out of the quark because they shy away from marketing expenses. Whenever we think they might need the marketing of classical radio, they get interesting for us."
Ulrich Kubak is currently considering the marketing of dietary supplements. "Our listeners are health-conscious and focus on prevention, which is attractive for advertising customers from the pharmaceutical industry. Selling through our online store would be the next step."
The success of his strategies can be seen in the balance sheets of Klassik Radio AG. In fiscal year 2004/2005, consolidated sales were still at nine million euros, earnings before interest, taxes, depreciation and amortization (EBITDA) at around 0.4 million euros. Since then, both ratios have risen steadily. In 2018, more than 15 million euros were sold and EBITDA of more than 1.7 million euros was generated. And if streaming becomes a success, the company could advance into completely different dimensions in the future.
The fact that Klassik Radio with its various pillars is already delivering such good results is also due to Kubak's consistent attitude as an entrepreneur: "I work with double-digit margins. Anything less, we don't touch." And of course the low customer acquisition costs that the station has today. "We have more than six million listeners and can promote our products until every listener knows what we offer. In this way we will also make our streaming service Klassik Radio Select known and successful." ®
Author: Yvonne Döbler