Teutons ride it out

Bertelsmann profits dip; revs up 21%

BERLIN — With the worst advertising slowdown in years, and music sales down and dot-coms a bust, German media giant Bertelsmann announced a drop in profits Thursday, but chief exec Thomas Middelhoff stressed that the group was revving up for long-term growth in all of its business areas.

Gross divisional earnings were down about 3% to 1.2 billion euros ($1.1 billion), but capital gains of $3.3 billion from asset sales such as its stakes in AOL Europe and Internet services provider Mediaways added to overall profit.

Annual revenues for the business year, which ended in June, rose 21% to $18 billion.

Five of the group’s seven divisions saw profit growth, with TV arm RTL Group accounting for 20% of the company’s total sales and 44% of the profits. RTL posted profits of $494 million, up 13% over last year.

RTL has warned that its profits this year would be down 10%-15% due to the bad state of the advertising market.

Beleaguered music group BMG and DirectGroup, which houses book clubs and e-commerce operations, weighed down Bertelsmann’s overall performance. BMG saw losses of $274 million, although about $270 million of that was a one-time loss due to restructuring, according to execs; revenues were down by nearly 8% to $3.5 billion. The poor showing at the label has resulted in cuts, including the axing of 600 employees.

The DirectGroup, meanwhile, was hampered by Internet startup losses, which added $144 million in one-time costs to its $50 million loss.

Bertelsmann publishing division Random House saw gross profits nearly double to $165 million, while Arvato, the services division, posted a 7% rise in gross profits to $171 million. Newspaper and magazine publisher Gruner + Jahr, however, suffered a 24% drop in gross profits to $269 million.

Content focus

Middelhoff said cost-saving efforts would lead to the shedding of non-core or money-losing assets. Bertelsmann has already shifted focus from access ventures like AOL Europe and network operators such as Mediaways to concentrate on content and content outlets.

The 166-year-old privately owned group ranks behind Vivendi Universal as Europe’s second biggest media group. As it tries to shape up for a stock market listing, the traditionally secretive group has also sought to shed some light on its operations and strategies.

Execs were tight-lipped about the short-term future, however. “Everyone knows the economic situation is very uncertain. I consider it difficult to come out with forecasts of our own,” Bertelsmann finance director Siegfried Luther said.

Company did say losses related to Internet startups throughout its divisions, which amounted to $817 million, had reached their peak. Middelhoff declared he was confident that Bertelsmann’s online businesses, including its alliance with Napster, would pay off in the long run. He also defended efforts to safeguard CDs from copyright infringement, saying he didn’t expect a consumer backlash when copy protection is introduced.

Middelhoff added that CD burner manufacturers should have to pay fees to the music industry since their hardware is being used to copy music.

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