This article was corrected on July 30, 2002.
Now that their high-flying maverick CEO Thomas Middelhoff has been shown the door, Bertelsmann execs on both sides of the Atlantic are bracing for far-reaching changes.
A deal junkie who likes to stir the pot, Middelhoff has been supplanted by conservative, by-the-numbers loyalist Gunter Thielen.
“Thomas was like a wildcatter and he had some gushers, but the new team is steadier and unflashy and focused on profits,” one Bertelsmann exec said.
Thielen, who has had a long career at the Gutersloh, Germany-based conglom, has served as chair of the Bertelsmann Foundation, sat on its executive board and run its printing and distribution services.
He is likely to view many of the initiatives Middelhoff championed — from an IPO to an alliance with Napster — with considerable skepticism.
For many divisions of the far-flung conglom, that means further job cuts, and a focus on traditional profit centers.
One of those areas is book publishing, where the company has its roots — it started publishing hymnals in 1835.
Random House exec VP of communications Stuart Applebaum promised business as usual for the company Monday, even as U.S. publishing insiders predicted further downsizing in the months ahead.
Random House endured major cutbacks last year after topper Peter Olson called for a 12% return on sales – a steep margin for trade publishing – in preparation for the IPO that Middelhoff trumpeted.
Even if Middelhoff’s IPO plans are scrapped, however, Thielen is not likely to let divisional chieftains lower their financial targets.
Random House staffers expect more job cuts in the fall as the pub’s three Gotham sites consolidate in new headquarters at Broadway and 55th St.
Olson, the first American exec to sit on the Bertelsmann executive board (a body that reports to the reigning supervisory board that ousted Middelhoff), is known for granting top editors considerable autonomy, fostering competition between imprints.
That approach suits Random House’s hit-driven star system, but may not play well with a CEO whose hands-on publishing experience does not include closing blockbuster deals.
The future of Bertelsmann’s online book clubs and its $200 million investment in Barnesandnoble.com are also an open question.
Meanwhile BMG Entertainment, which has usually resided in fourth place among the five music groups in the U.S., is likely to be a high priority for Thielen.
BMG topper Rolf Schmidt-Holtz, a Middelhoff appointee with a background in TV and print, has struggled for more than a year to revive the division, which will face tough scrutiny.
The entire music industry has suffered from a protracted global slump, but Middelhoff’s focus on empire-building — think EMI and Napster — clearly played a role in distracting managers from day-to-day affairs and was partly behind the unit’s lackluster perf.
For another thing, Thielen must grapple with an eyebrow-raising deal in which BMG was recently forced to buy out the 80% of Jive Records that it didn’t already own for a staggering $3 billion.
Industry watchers say the price is well above market, warning that Jive’s top stars Britney Spears, *Nsync and R. Kelly, may have passed their peak earning season.
Not all the news on the music front is downbeat, however.
Under topper Antonio “L.A.” Reid, Arista and RCA have been on a hot streak.
The road could also be bumpy for Gruner + Jahr, the international magazine company in which Bertelsmann holds a controlling stake.
Middelhoff sought to reinvigorate G + J by expanding its interests in the U.S., where G + J has always operated in the shadows of larger mag groups like Time and Hearst.
Under new CEO Dan Brewster, G + J USA spent close to $500 million to acquire the two business mags, Inc and Fast Company, and Rosie O’Donnell was hired to transform dusty but popular women’s mag McCall’s.
Those investments may be ill-timed, however, considering the dicey ad market, which sent gross profits down 24% to $269 million in fiscal 2001.
With Middelhoff gone, Bertelsmann is not likely to make further expansion of G + J a high priority.
Back in Europe, observers believe Thielen would be foolish to tinker with its pan-Euro station group RTL — the conglom’s biggest cash cow.
Third in a row
Middelhoff is the third top exec of a major media company to be ousted in the past month.
His ouster mirrors that of recently booted Vivendi Universal topper Jean-Marie Messier. The men, who are friends, both have outsized egos, an infatuation with new media, and a drive to force synergies upon disparate activities that alienated long-time staffers at the congloms.
Middelhoff continued to call a merger with EMI “a done deal” a number of times before that combination was nixed by the European Commission — a ruling that that most industry players saw coming a mile away.
Like Messier, Middelhoff was highly visible in New York, where he kept an apartment and sought the media spotlight, appearing at conferences, pontificating on panels and swanning around at galas.
Some think Thielen and the Mohn family, which controls Bertelsmann, still might have a hard time fending off an IPO since 25% shareholder Groupe Bruxelles Lambert retains the right to float its stake.
In a stock swap last year, Bertelsmann gave then-fellow RTL shareholder GBL a quarter of its equity in return for GBL’s 30% share in the broadcaster. The deal gave GBL, a Belgian investment bank, the option of floating its 25% stake in Bertelsmann within four years.
As for Middelhoff’s next move, both Deutsche Telekom and AOL Time Warner insiders denied the ousted exec will be joining their executive suites.
A few insiders said Middelhoff himself might have encouraged such rumors of job offers from rival congloms in order to bolster his bargaining position.
Bertelsmann’s top lobbyist and Middelhoff hire Joel Klein, however, has found a new job: The former antitrust czar and Microsoft attorney was named chancellor of New York City schools by Mayor Michael Bloomberg.
(Ed Meza in Berlin and Justin Oppelaar in New York contributed to this story.)