Sunday, July 13, 2008

A Week In The Life of Bertelsmann AG

Okay, yesterday I reviewed all my previous blogs on Bertelsmann AG, the parent company of Random House, the largest trade (meaning not textbook) publisher in the world.

Both Bertelsmann and Random House have had less than stellar financial results over the last couple of years. As a result, Bertelsmann put its North American Direct Group [direct-to-consumer sales] on the market back in March. And, in May, they named a new chief executive to run Random House--one with no prior publishing experience.

For the last ten days, Bertelsmann has been in the news almost every day.

It began on the Fourth of July with Interfax China, a news agency. Interfax reported here that Bertelsmann had decided to close all its book club business in China. The news release said:
However, the closing of the book club does not mean that the group will retreat from the Chinese market, but rather, it will come back with a new marketing strategy. It will likely shift its business focus to other fast developing areas such as media services and magazine publication. Its new investment program also includes the establishment of a $100 million Asia fund, which was set up in January this year and headquartered in Beijing.

"The situation in China is very different from abroad where the 'book club' model is quite successful. Chinese customers are more sensitive to price when purchasing books, but Bertelsmann's book club model has failed to provide enough discount compared to its competitors, such as Joyo and Dangdang," He Xiao, an analyst from CCID Consulting told Interfax.

Since Bertelsmann opened its book clubs in China in 1997, more Chinese customers have begun buying books online where they can purchase what they want without the requirement that they buy a minimum number of books.

Then, this past Monday, Reuters UK reported here:
German media group Bertelsmann . . . is drawing up plans to sell its Direct Group France division for an amount that could exceed 300 million euros ($470 million). . .

A spokesperson for Bertelsmann in Germany said that no decision had yet been taken concerning the sale of the European activities of Direct Group. "The news over the timing and the price are pure speculation," he added.
On Tuesday, Publishers Lunch directed readers to AFP's story here:
Bertelsmann wants to sell its global book clubs because falling sales have convinced the German media group it is time to turn the page on its historic activity, a press report said on Tuesday.

A sale could be quick and complete, according to the Financial Times Deutschland, which cited unnamed sources at Bertelsmann.

Hartmut Ostrowski, the Bertelsmann CEO, was quoted saying "book clubs are losing market share, and we are concerned about how the situation will evolve."

On Friday, reported here:
Najafi Companies, a Phoenix, Arizona-based private investment company, has agreed to acquire the direct-to-consumer business, Direct Group North America, from Bertelsmann AG the two companies announced today. The sale agreement, which was entered into earlier this week, is expected to close in the third quarter of 2008. Financial terms between the parties, both privately held, were not disclosed.

Bertelsmann describes the Direct Group North America this way:
Direct Group North America is one of the largest direct-to-consumer distributors of media products in the U.S. The company is home to such marketing-leading book, DVD and music club brands as Doubleday Book Club, Book-of-the-Month Club, Mystery Guild, Black Expressions and Columbia House. The company serves millions of members in the U.S. and Canada through its various club catalogs and online. Direct Group North America has offices in New York, Pennsylvania, Indiana, South Carolina and Toronto, Canada.
On Friday, while most eyes were focused on the sale of the North American Direct Group, reported:
A Bertelsmann spokesman said the company's European book club business is also under review, but a decision is unlikely before the middle of next year.

Then Publishers Weekly's "Morning Report" announced Bertelsmann was denying it had plans to sell its European book clubs, saying:
A company spokesman denies previous claims and says it has only started the process of divesting Columbia House and Bookspan, its U.S. clubs.
The publishing industry is waking up. Two large book club publishers--Bertelsmann and Harlequin--have seen their profits plummet in the past couple of years. With the easy immediacy of e-book downloads and the ready availability of online bookstores like Amazon, why should anyone sign up for a book club that has an expectation of a minimum number of books or where the selection is left to the publisher.

The only way book clubs will work in today's world is: (1) If readers have no other access to either bookstores or the Internet; (2) If the price is competitive with Amazon's pricing; or (3) If the book club is related to a special niche of readers and has access to books those readers cannot get any other way.

Keep an eye on the new Random House CEO, Markus Dohle. It will be interesting to see what path he leads RH down.

No comments: