The numbers have never failed Bertelsmann, and at a September 22 world press conference in Gutersloh that lifted an embargo on results, chairman and CEO Thomas Middelhoff announced some new toppers. In the business year ending June 30, group turnover had risen 13.2% to DM26 billion (some $14.7 billion at the DM1.77=$1 conversion used by the company). If nonconsolidated revenues are included--notably the 50-50 partnership in European TV--the total reaches $16.4 billion. Much of the aggregate revenue came from acquisitions--principally from the consolidation of America's Random House and Germany's scientific Springer-Verlag; discounting these, the volume of business rose a more modest 5%.
Bertelsmann is now the world's number-one book group, market leader both in the United States and in Germany. For the record, it is also number one in book clubs worldwide, in European broadcast TV and magazines; number two in media e-commerce in the U.S. and Europe, thanks to the Barnes & Noble connection and Bertelsmann's own BOL--with the announced intention of becoming number one; number two in European online services with AOL.
In a chart projection, Middelhoff demonstrated that of the five top media groups Bertelsmann is "the most international": it now derives a whopping 35% of its sales from the U.S., only 28% from Germany, the balance from everywhere else. (Disney, Time Warner, Viacom and even News Corp. earn between 74% and 87% of their turnover in the U.S. alone.)
Total revenues from the United States approached $5 billion, and Middelhoff let it be known that the new Random House was performing much better than the projections. The Random and Springer acquisitions were "the biggest investments" in Bertelsmann's history. The downside is a rise in corporate debt due to acquisitions--the two just mentioned, plus the partnership in barnesandnoble. com.
As a result of goodwill and restructuring costs associated with its book acquisitions, earnings before interest and tax fell to $102 million in fiscal 1999 from $130 million in fiscal 1998 in the book group.
The new CEO announced his goal: 10% annual growth with internal financing; the continuity of core businesses; and the firm resolve to be world market leader in books. Taking the floor, book group chief Frank Wossner noted that German book club membership had risen (by 100,000) for the first time in five years, the result of intensive advertising.
As a reward for their pilgrimage to Gutersloh, reporters get an opportunity to pick the brains of group directors during drinks and dinner on the eve of the press conference. But it was only after the conference that PW sat down with Thomas Middelhoff to check out some rumors. Just a year earlier, in Gutersloh, Frank Wossner had told PW of plans for a major American acquisition, and Random turned out to be it. Now there was talk of a Bertelsmann move in the direction of another American major, Simon & Schuster. "Not possible," Middelhoff said; any additional large slice of American market share would run smack into antitrust. "We are now sufficiently big," he explained. "The challenge will be to improve our market share in other languages." While Bertelsmann is not interested in expanding in the American trade market, it still hopes to grow in the professional segment. Middelhoff noted that that while the company is planning a number of IPOs for is Internet-related companies, it might consider a public offering of the professional group if the company can expand its market share.
Middelhoff fully intends to increase the group's stake in Spanish-language publishing, and even in French. There will also be a retooling of the book clubs to make more use of the Net--clearly Middelhoff's preferred medium. In fact Middelhoff is so committed to the Net that he viewed the company's $164 million loss in its multimedia group as a good thing, explaining that the growing loss reflected Bertelsmann's increasing investment in the field
(Earlier, to a question from the floor, Middelhoff announced that the Chinese book club had reached its millionth member, and that testing was underway for a club in South Korea.)
The bottom line, he now told PW, will be 5%-7% annual growth in book publishing, while books will maintain a 25%-30% share of corporate revenues well into the future. And what about the rumor that his group was interested in NBC, as part of a major thrust into American television? Again, not possible, U.S. law being what it is with respect to foreign ownership. It would make no sense to buy only 24.9% of a network. Middelhoff hopes for a change in the law, inasmuch as U.S. companies are coming to Europe without any such restrictions.
