German giant sees investment as best way to compete with Amazon.com in the U.S.
In a move that will jump-start its entrance into the American online bookselling war, Bertelsmann has acquired a 50% stake in barnesandnoble.com for $200 million. With its investment in the Barnes &Noble subsidiary, Bertelsmann has dropped plans to begin its own U.S. online bookselling operation, BooksOnline (BOL), although it will go forward with the launch of its online service in the U.K., Germany, Spain and the Netherlands on November 15. The new partnership also means that B&N's plans for a public offering of barnesandnoble.com will be postponed.
Bertelsmann chairman and CEO designate Thomas Middelhoff told PW the company decided to make the investment in barnesandnoble.com because it felt the partnership would give Bertelsmann its "best shot" to create a service that could compete with Amazon.com in the U.S. By partnering with B&N, Bertelsmann will achieve a level of brand awareness that would have taken the company years to establish on its own, Middelhoff said.
B&N chairman Len Riggio called the agreement with Bertelsmann a "great deal for the company." According to Riggio, the "globalization of bookselling" provided a major incentive for B&N to hook up with Bertelsmann. Riggio told PW that "we could never have gotten a global presence so quickly" without Bertelsmann. "Eventually our customers will have access to books around the world," Riggio said.
Under the agreement, B&N and Bertelsmann will each have three board members. Bertelsmann's representatives will be Middelhoff; Markus Wilhelm, president and CEO of Doubleday Direct Inc.; and Klauss Eierhoff, head of Bertelsmann's multimedia operations. B&N had not announced its three members at press time, although Riggio, who will remain chairman of barnesandnoble.com, is certain to be one of the representatives.
Other top managers of barnesandnoble.com will include Steve Riggio, vice-chairman, and Jeff Killeen, chief operating officer. Bertelsmann has the right to pick the service's CEO and is in the process of selecting a candidate. Chip Austin, president of BOL, will direct the company for the next month but will then most likely move to a new position within Bertelsmann. In addition, Wilhelm will return to concentrating on running Doubleday Direct, with Eierhoff in charge of overseeing BOL's European activities.
Bertelsmann had assembled a team of approximately 200 people to work on BOL, but Middelhoff said that only some 40 employees worked on the U.S. edition, and he expected they would be integrated into barnesandnoble.com. Middelhoff also stressed that in its e-commerce activities, Bertelsmann will adhere to its principle of decentralized operations. Neither Bertelsmann's English-language publishers nor its book clubs will be involved with the management of barnesandnoble.com.
Reaction from publishers at Frankfurt ranged from "it's a very smart move" to "this looks like the end of territorial rights." Ironically, the question of territorial rights had been the subject of a seminar October 6, the day before the news broke in Frankfurt. At the seminar, Ronnie Williams, president of Britain's Publishers Association, delivered a ringing defense of the concept of territorial rights as essential to the development of local authors.