Record profits at Bertelsmann

U.S. becomes company's biggest market

GUETERSLOH, Germany — Bertelsmann’s profits rose 9.8% to a record $666 million on 2.4% higher revenues of $13.6 billion in the year to June 30, it reported Wednesday, noting the U.S. has become the company’s biggest market for the first time.

Bertelsmann did nearly a third of its business in the U.S, fractionally more than sales from Germany, coinciding with its acquisition earlier this year of Random House.

“We have become a European-American media house with German roots,” Bertelsmann chairman Mark Woessner noted proudly.

Windfalls and currency

Still, the earnings improvement was largely due to profits on the sale of business units and windfall gains on currency exchange rate fluctuations, execs admitted, offsetting problems in several core businesses, “some of which were homemade, and others attributable to difficult economic conditions,” Woessner said.

The Asian financial crisis put a damper on BMG Entertainment’s music sales in that region, while book clubs in Germany and France reported declining profits. The book clubs are currently undergoing “repositioning and restructuring” to correct these problems, according to the company.

Bertelsmann’s book division posted revenues of $4.3 billion, 2% higher than the previous year.

The Asia factor

Despite the crisis in Asia, BMG Entertainment reported strong sales in other regions, especially in the U.S, with revenue up 8% to $4.7 billion.

Turnover at newspaper and magazine publishing division Gruner+Jahr also improved, increasing 6% to $3 billion. But revenues at Bertelsmann’s industrial group Industrie AG declined 6% to $2 billion.

Woessner, who has served as Bertelsmann chairman for the past 15 years, is passing the reins to Thomas Middelhoff in November. He said Wednesday he regrets the company would not be “in clean and tidy condition” for Middelhoff.

The 1998 fiscal year proved to be a “hard climb to new heights,” Woessner acknowledged to a press conference.

Digital dilemma

Meanwhile, Woessner said he hopes a “reasonable solution” will soon be found for the company’s digital TV dilemma, but he struck a pessimistic note before reporters.

“I believe this issue may be resolved within the next four weeks, but I fear it may not be over by the end of this calendar year, or it may never be resolved,” Woessner said.

Woessner attributed the company’s difficulties in launching a viable digital pay TV platform in Germany to problems with European and German antitrust watchdogs, as well as conflicts with Leo Kirch, fellow shareholder in pay TV web Premiere.

Nothing ruled out

No options — including the sale of CLT-Ufa’s stake in Premiere — can be ruled out, stressed Michael Dornemann, Bertelsmann board member in charge of music and television. “At some point, we have to investigate more radical solutions.”

Negotiations with Kirch over programming supplies for Premiere have been rocky in recent months, Dornemann conceded. Lately, however, “Kirch’s position has become more realistic.” But Dornemann said he expects German cartel authorities to deny CLT-Ufa’s application for permission to raise its stake in Premiere from 37.5% to 50%. “If that happens, we will consider taking on new partners.”

As part of a digital pay TV merger proposal blocked by the European Commission in May, CLT-Ufa and Kirch planned to up their stakes in Premiere to 50% each by buying out Canal Plus’ 37.5% stake in the web. Since the alliance was banned, the future of the Canal Plus share has been uncertain.

Yet for media heavyweight Bertelsmann, Dornemann noted, digital pay TV is “an interesting but supplementary market.”

New board member Klaus Eierhoff replaces Middelhoff as head of Bertelsmann’s fledgling multimedia division. The company plans to move forward with the marketing of AOL Bertelsmann Online, and is preparing to launch online book and Internet telephone services. Multimedia revenues reached $415 million in 1997-98, and are expected to double by the year 2000.

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