Teuton titan thrives

Bertelsmann back in black

Reaping the benefits of belt-tightening measures instituted last year, German media giant Bertelsmann swung to a half-year operating profit (before interest, taxes and amortization) of 157 million euros ($156 million) after losses of $880 million in the same period last year.

But the cost cuts couldn’t help the privately held conglom on the top line: It suffered a 5% drop in revenue to $8.79 billion, due largely to the advertising downturn over the past year. Bertelsmann is expecting higher sales and profit figures for the second half of the year.

Bertelsmann said it moved into the black thanks to drastically lowered Internet and restructuring costs as well as carryover profits from its sale of AOL Europe. Company said Tuesday that it is looking to sell its online book shop BOL, but will keep U.S. online music seller BeMusic and its 40% stake in e-tailer Barnesandnoble.com.

However, Bertelsmann is taking a $1 billion provision for a possible writedown on U.S. music company Zomba. Company paid a reported $3 billion in cash for Zomba as part of a preexisting contract with the label’s founder, Clive Calder.

“After years of dynamic growth and high extraordinary earnings from the Internet sector, Bertelsmann finds itself in a period of consolidation,” Bertelsmann CEO Gunter Thielen said.

Thielen, who replaced former chief exec Thomas Middelhoff in July, said the group’s current goals are to raise the operational performance and improve profitability of its core businesses in order to have the necessary financial scope for further growth through its own power.

“Only in this way will Bertelsmann be able to expand into the top rung of the worldwide media market,” Thielen added.

Bertelsmann’s majority shareholder, the mercurial Mohn family, appears to be steadfastly against parting with any of its 75% share in the group, although Belgian investment bank GBL has plans to float its 25% stake by 2005 — unless the Mohns buy it back.

Thielen also stressed that the independence of its corporate managers played a key role in the group’s success. The chief exec has been loosening the executive structure at the group and encouraging greater independence among its subsidiaries.

“Decentralized responsibility coupled with cross-divisional cooperation is one of the guarantees for success at our company,” he added.

The group’s core business remains the production and distribution of content, with TV playing an increasingly significant role. Its Pan-European broadcasting unit, RTL Group, made an operating profit of $172 million.

Bertelsmann said it would seek to insure and expand its role as the world leader in book publishing; company’s Random House recorded $68 million in operating profit.

Thielen emphasized that Bertelsmann was seeking to turn around its troubled direct-to-customer and Internet division DirectGroup, which saw losses of $118 million. “We don’t see the Internet as a business on its own, but rather a part of the core business and primarily as a distribution outlet.”

Bertelsmann’s rocky relationship with Napster is also nearing its end, after a Delaware bankruptcy court nixed the conglom’s offer to buy the assets of the battered music netco for $10 million plus the elimination of about $90 million in debts owed to Bertelsmann.

Judge Peter J. Walsh quashed the deal, brokered by Thielen’s ousted predecessor Thomas Middelhoff, arguing that the negotiations had been tainted by the divided loyalties of Napster CEO and former Bertelsmann exec Konrad Hilbers.

Napster’s financial chief warned Friday that the company would be forced to close its doors if the Bertelsmann purchase didn’t go through. Bertelsmann reps said in a curt statement that the company “accepts” the ruling.

Company sounded downbeat about its music division, which it said continued to face major uncertainties in the market. BMG, whose artist roster includes Pink, Usher, the Dave Matthews Band and Avril Lavigne, posted an operating loss of $45 million.

However, BMG insiders have maintained that the label group will report a profit for the full year of 2002. BMG expects to draw strength from a back-end tilted release schedule, which includes its much-hyped Elvis retrospective later this month.

Among Bertelsmann’s other divisions, operating profits came in at $120 million for newspaper and magazine publisher Gruner + Jahr, $26 million for trade publisher BertelsmannSpringer, and $44 million for media services unit Arvato.

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