Saturday, July 12, 2008

What's Up At Bertelsmann?

Bertelsmann, the parent company of Random House, was in the news this week because it sold all its American bookclubs.

I began this blog three years ago. This morning, I did a search
[I love Blogger] of the posts I had done on the German media conglomerate during that time. I found reading all the posts at once pretty interesting.

Today I'm going to do a narrative timeline of the past three years using those Bertelsmann posts. Tomorrow I'll talk about this week's news.

November 4, 2005: Random House (a division of Bertelsmann), announced a plan to offer its books for online viewing on a pay-per-page-view basis. Free sample excerpts will be permitted with a 4 cents per page charge for every page after the free sample.

November 27, 2005: In looking at who owns what, I reported that Bertelsmann owns German magazines, radio and television stations, BMG Music, Waterbrook Press and Random House. In addition to its own imprints, Random House has multiple subsidiaries, including Ballantine, Bantam Dell, Crown, Doubleday Broadway, and Knopf.

December 12, 2005: I quoted a story in the Wall Street Journal on HarperCollins' plans to maintain control of the digitization of their books. "Along with a recent initiative by Bertelsmann AG's Random House, the initiative signals a growing desire by publishers to control and participate in some of the new online uses of their books."

February 3, 2006: Random House announced that, on February 6, XM Satellite Radio would start to offer "The Random House Hour" on its Sonic Theater channel with each episode featuring two 30-minute readings from different books. The books would be read aloud in their entirety over forthcoming episodes.

I also talked about Random House and In May, 2000, Random House had announced Random House Audible, a strategic alliance with Audible, Inc. to establish "the first-ever imprint" to produce spoken word content to be distributed on the Internet.

November 13, 2006: Bertelsmann revealed that their profit for the first nine months of 2006 was almost half of what it had been the previous year. Reports were that between 20 and 30 of Random House's sales force were cut.

The New York Times described Bertelsmann's Random House as "the world's largest English-language trade publisher, with combined sales of about $2 billion. As of 2004, the company is publishing about 8,000 books a year and has a backlist catalog of some 50,000 titles, employing about 5,300 people worldwide." Bertelsmann is the "third largest media conglomerate in the world."

March 17, 2007: Michael Hyatt's blog listed the top ten U.S. trade publishers by market share. Random House (Bertelsmann AG) held the top spot with 18% of the market. The #2 slot was taken by HarperCollins at 12.4%.

April 11, 2007: Bertelsmann paid Time Inc. $150 million, buying out its partner's fifty percent share of Bookspan, their joint-venture that includes the Book-of-the-Month Club.

The Wall Street Journal reported the deal "would leave Bertelsmann as the only major operator of book, music and DVD clubs in the U.S. . . . The acquisition follows Bertelsmann's 2005 purchase of the Columbia House music and DVD clubs for about $400 million." At the time, I said, "Bertelsmann is putting its money on a very old-fashioned business model--the traditional bookclub--at a time when Internet book sales continue to grow."

May 5,2007: I reported that, among the other bookclubs Bookspan owns are: American Compass, a club primarily aimed at American conservative readers; InsightOut, a book club featuring books of topical interest to gay and lesbian readers; and Mosaico and Circulo, two clubs offering Latin and Spanish-translated selections.

BusinessWeek had an article explaining that, while bookclubs in the U.S. were being replaced by a trend toward e-books and online sales, in places like the Ukraine, there was a growing population of well-educated people faced with relatively few bookstores. "As a result, Bertelsmann has also become the biggest book publisher in the Czech Republic and has scored big successes in Poland, Russia, and elsewhere."

BusinessWeek also reported that the developing world is experiencing a "booming print media." The article cited places like India, Vietnam and China as well as Argentina, where the number of published books has more than doubled since 2002.

While American bookclubs target older consumers, nearly half of the 2 million members in Bertelsmann's Ukrainian bookclub venture are under thirty. Bertelsmann focuses on keeping its prices low in recognition of the lower incomes in the developing world. To help keep costs down, rather than delivering the bookclub shipments to a customer's door, deliveries are made to post offices where the customers come to pick up their books.

March 19, 2008: Four months ago, Bertelsmann reported on Random House's performance for the year 2007. Revenue fell 5.6% to $2.39 billion and EBIT (earnings before interest and taxes) dropped 4.9% to $225 million.

The Direct Group's [direct-to-consumer businesses] 2007 revenue fell 4.1% and that Bertelsmann's Chairman Hartmut Ostrowski said the company is "examining all strategic options, including the possible sale" of the group. The Direct Group's EBIT "plunged nearly 91%."

Bertelsmann said the weak performance of the U.S. division where music, DVD and book club membership declined significantly and sales per member were off, was also an important factor in the disappointing performance.

During a press conference in Berlin, Random House announced Morgan Stanley will handle the sale of the Direct Group North America, but did not give a formal timetable.

May 21, 2008: Bertelsmann named Markus Dohle to be the new RH chief executive, replacing Peter W. Olson who had been CEO since 1998. The hope is that Dohle, who has no publishing experience, will open up new lines of business to revitalize Random House.

Richard Sarnoff, president of Random House's corporate development unit, said, "'We acknowledge that a generation is growing up that may not have the same visceral connection with the book format,'" he said. "'They have read as much on screens as they have on paper. We need vehicles to translate our books in different ways.'"

We'll talk more about Bertelsmann tomorrow.

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