Less than one year after it paid $150 million to Time Warner to acquire complete control of Bookspan, Bertelsmann has put the Bertelsmann Direct North America unit up for sale and is considering selling its entire Direct Group, which houses all of its various club businesses worldwide. The North American group consists of 21 book clubs plus BMG Music Service and Columbia House DVD, under the direction of Stuart Goldfarb. Revenue in 2007 was just under 900 million euros ($1.2 billion), with more than half generated by the book clubs. In 2007, book sales were virtually flat, while DVD sales dipped slightly and music sales were down. The decision to sell BDNA marks an abrupt change of direction for Bertelsmann, which only last April seemed convinced it could make a viable business by combining Bookspan with its North America music and movie clubs.
As part of its effort to integrate Bookspan into BMG/Columbia, BDNA eliminated several hundred jobs in the year and incurred substantial impairment (291 million euros) and restructuring (123 million euros) charges in 2007. Excluding those one-time events, the division was marginally profitable last year. The entire Direct Group had sales of 2.5 billion euros last year and earnings before interest and taxes of 10 million euros.
Morgan Stanley is heading the search for a buyer; it is unclear who the buyer might be and what price the unit might fetch. Bertelsmann’s $150-million purchase of Time’s half-stake in Bookspan valued that company at $300 million, and Bookspan had 2006 sales of about $700 million, making the revenue-to-sale ratio about 43%—a figure which would translate to just under 400 million euros for all of BDNA. BDNA generates about 35% of the Direct Group’s worldwide revenue. Bertelsmann has club operations in 21 countries and more than 15 million members, but increasing competition from the Internet and other outlets have continued to put pressure on the traditional club business. While BDNA has tried to use the Web more in its operations, the number of members declined significantly last year and sales per member also fell.
At a Berlin press conference last week, Bertelsmann CEO Hartmut Ostrowski said the situation with the entire Direct Group was not satisfactory, while Peter Olson, who added oversight of BDNA last year, said the sale of the unit will begin in a few weeks.