Silent Giant : Few Are Untouched by Germany’s Bertelsmann
It stands just a stone’s throw from a sheep pasture in this provincial town in northern Germany: the corporate headquarters of Bertelsmann, the biggest international multimedia conglomerate that no one knows anything about.
In America, entertainment powerhouses such as Walt Disney Co. and Time Warner Inc. are noisily battling it out for the top competitive positions in this multichannel age. Giant broadcasting concerns--Turner Broadcasting System Inc., CBS Inc., Capital Cities/ABC Inc.--are striving to ally themselves with the best possible corporate partners for the future.
But in Gutersloh, Bertelsmann lumbers invisibly onward, rousing barely a peep from the investment community even though it holds the third-largest position in the global information-and-entertainment industry.
In its most recent fiscal year, Bertelsmann enjoyed total sales of about $14.5 billion, less than only Time Warner and Disney. Few Americans may have heard of Bertelsmann, but there are few who haven’t in some way been touched by it.
If you like to curl up on a stormy evening with Danielle Steele or John Grisham, you are enriching Bertelsmann. If you enjoy period-instrument performances by forte pianist Andreas Staier, or blues artists such as Blackgirl, you are listening to Bertelsmann. If you have clipped a recipe from Family Circle magazine, if your kids blow their allowance on Crash Test Dummies albums, it all comes from Bertelsmann.
Bertelsmann says its print shops churn out 25% of the paperbacks published in America. Its book clubs boast 25 million members in 18 countries and its music clubs 10 million more. And those numbers are likely to swell if the latest Bertelsmann venture--a fledgling book club in China--takes off in that vast market.
Bertelsmann’s newspaper and magazine divisions are steamrollering into information-hungry Hungary, Poland and the Czech Republic. Its broadcasting executives recently bought a stake in the top Asian music-television outlet, Hong Kong-based Channel V. In Bertelsmann’s own back yard--the large and surprisingly underdeveloped German electronic-communications market--it owns a share in the top revenue-generating TV station, and promises to launch an on-line service by Christmas.
Though Bertelsmann is not a household name, it employs more than 57,000 people worldwide, more than 13,000 of them in the United States.
Sound like a good idea to buy some shares in this juggernaut? You can’t. Unlike Disney, Time Warner and the many companies now so busily playing the acquisitions game in America, Bertelsmann remains a closely held concern, financing itself through internal growth rather than public stock offerings.
The great majority of its stock is held either by the descendants of the founder or by the nonprofit Bertelsmann Foundation, which funds about 80 reformist projects ranging from literacy promotion to medical research to Germany’s struggle with racial intolerance--but above all on researching the best ways to run a corporation.
A look at this most un-American giant, with its tight ownership structure, its cash-rich balance sheet, its conservative corporate culture, its sense of noblesse oblige--and its global dominance--throws into question the thinking, now so fashionable in America, that the key to success in the information age is massive growth through large-scale mergers and acquisitions.
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“In these so-called mega-deals, there’s usually only one thing that’s mega-size, and that’s the high purchase price,” argues Michael Dornemann, the New York-based head of Bertelsmann’s BMG Entertainment division, referring to such recent announcements as Disney’s much-applauded proposed $19-billion purchase of Capital Cities/ABC.
Bertelsmann has been derided for failing to get an American film studio in its clutches so far, but Dornemann defends his company’s go-slow approach: “The Americans are crazy to be paying these prices,” he said in an interview with the influential German newsweekly Der Spiegel--another partly held property in the Bertelsmann empire.
The Bertelsmann way is to grow by making acquisitions of relatively inexpensive small and medium-size companies, and then building them up, said Strauss Zelnick, president and chief executive of BMG Entertainment North America, a former Fox studios executive whose arrival set off speculation that Bertelsmann’s move into film production was imminent.
“Of all the entertainment businesses, the motion picture business is the one with the highest risk, and the lowest reward,” he said, denying rumors that Bertelsmann will be a bidder for MGM studios.
Zelnick said Bertelsmann’s U.S.-based entertainment division will occupy itself with its operations in music creation and distribution, television and radio broadcasting, audio- and video-cassette manufacture, and interactive electronic entertainment.
The German firm has been advancing steadily in the music business since 1986 when it acquired RCA Records for $300 million. Dornemann has bolstered BMG’s presence in the global market by financing deals with industry veteran Clive Davis’ Arista Records and other promising labels such as LaFace, Zomba and Time Bomb Recordings.
A restrained style has been a recipe for success throughout the postwar period for Bertelsmann, which was founded in 1835 in Gutersloh as a mass-circulation publisher of Protestant tracts. Bertelsmann, its products and its senior officials have moved far away from organized religion today, but the strict, self-denying Calvinism that guided the founding family remains at the core of its corporate culture.
“To understand it, you have to know the [Gutersloh] region,” says German financial journalist Martin Mosebach, noting that this is the place the turn-of-the-century political economist Max Weber fixed on in his seminal “The Protestant Ethic and the Spirit of Capitalism.”
And no one embodies Bertelsmann’s brand of secular Calvinism so much as its chairman emeritus, Reinhard Mohn, the man most responsible for taking the company from a small family publishing business with a staff of 300 to a top global player with tentacles in everything from paper-milling in Italy to lending libraries in Egypt.
“He is the perfect northern-German Protestant, with a deep suspicion of pomp and circumstance and a life of luxury,” says Mosebach, who wrote a lengthy profile of Mohn for the German financial daily Frankfurter Allgemeine Zeitung.
“He is a very old-fashioned type, like a missionary of the 19th Century: The sort of person for whom working is doing God’s service.”
That makes Mohn a contrast to the larger-than-life personalities now clashing in the executive suites of America’s top media conglomerates, film studios and talent agencies. Most Germans haven’t even heard of Mohn, even though he is one of the country’s most powerful men. He stays well behind the scenes, quietly pumping millions into his do-good foundation.
Mohn works out of a Spartan office at the Bertelsmann Foundation--”I don’t need rugs or paintings to show who I am,” he says--crossing the street each day at lunchtime to corporate headquarters, where he stands in line with a tray like everybody else in the employee canteen. He is known to nurse a single cup of cold coffee all day long, and his only hobbies are taking country walks and reading books on the secrets of successful management and government.
An avid scholar of corporate structures and motivational techniques, Mohn draws ideas from all over, including the Prussian military and the Jesuit order.
“There isn’t a problem in the world that hasn’t already been solved somewhere,” he says. “You just have to know where.”
Before Mohn came along, Bertelsmann was a relatively small player in Germany, a publisher of light fiction and technical books that was passed down to sons and sons-in-law in the same family. Near the end of the World War II, the Nazis shut it down as an enemy of the state; then, what the Nazis had left standing was bombed into near-oblivion by the Allies in the final months of the war.
Mohn, meanwhile, had been drafted into the Luftwaffe and was captured by the Americans in Tunisia. He wound up in a POW camp in Kansas, where he learned English and studied business administration. In 1946, he returned to Germany planning to become an engineer, but his father begged him to take over the bombed-out ruins of the family business.
Mohn agreed and has never looked back. No one in the rubble of immediate postwar Germany had the time or money to go browsing in bookstores, but problem-solver Mohn got the idea to organize a mail-order book club and send aggressive salespeople door to door.
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From that moment, Bertelsmann became, seemingly, a perpetual-motion cash machine. There have been severe difficulties with individual subsidiaries, markets and products over the years, but unbridled growth in other areas has always offset them.
“Mohn’s only problems have had to do with personnel--whom to hire and how to motivate people,” Mosebach says. “Never with money. All Bertelsmann does is grow and grow and grow.”
Ten years after it was founded, the Bertelsmann Readers Club had 2.5 million members and was throwing off enough cash to let Mohn mount a steady campaign of cash-financed growth and diversification, at home and abroad. Encyclopedias, records, foreign publishing houses, newspaper chains--piece by piece, the Bertelsmann multimedia empire was constructed, from its base in Gutersloh.
While Mohn and his present-day successor, Chief Executive Mark Woessner, preach a gospel of enlightened management and good corporate citizenship, battles with Bertelsmann can be bruising.
Consider the Luxembourg-based broadcaster Compagnie Luxembourgeoise de Telediffusion (CLT), which owns the majority stake in RTL, Germany’s oldest commercial television station.
Bertelsmann is a smaller shareholder, but Bertelsmann executives have decided that CLT has been too willing to pay for costly television programming; Bertelsmann would prefer to scrimp on production and boost profitability.
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The result is an ongoing fight for control of the embattled broadcaster. Bertelsmann’s tactic so far has been to buy out smaller shareholders and form boardroom alliances to match CLT’s voting clout. Now there are rumors that it is looking for ways to gain control of CLT itself.
Another Bertelsmann power play was the proposal it floated last year to join forces with Germany’s No. 2 media tycoon, Leo Kirch, and the German state telephone monopoly to provide various television and electronic services in Germany--an idea that sounds a bit like Time Warner and Disney joining forces with the U.S. Post Office.
European Union antitrust officials deemed the plan anti-competitive and--in a rare move--barred it. But Bertelsmann is still trying to reshape the proposal in ways that will satisfy regulators.
Such goings-on worry Germany’s media watchdogs, who think excessive media concentration in Germany--as in America--may one day shut out minority voices and ultimately undermine democracy.
“There is a potential danger in their power, even if it hasn’t been abused until now,” says Axel Zerdick, a professor at the Free University of Berlin.
Bertelsmann is under fire in Germany for offering books and broadcast programming that are long on popular splash and short on intellectual substance.
Television station RTL’s programming, for example, is a lightweight mix of American-style soap operas, game shows, hospital sitcoms and chattily anchored news shows. And Bertelsmann’s book club offerings are rich in what Germans call Trivialliteratur but noticeably skimpy on the German classics.
Company spokesman Helmuth Runde argues that Bertelsmann subsidiaries do offer highbrow fare, citing the recent publication of a memoir by Germany’s former foreign minister, Hans-Dietrich Genscher.
“What is quality?” Runde asks. “Was the Bible high-quality only when it was hand-typed by Gutenberg? Is it really any lower quality today, when it is printed for the millions?”
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Firm’s Steady Growth
Bertelsmann, founded 160 years ago in Gutersloh, Germany, is the third-largest multimedia company in the world, but remains a mystery to many. The closely held firm, which holds major interests in publishing and music, has posted impressive gains in both revenue and earnings over the past six years:
Revenue
In billions
Net income
In millions
Revenue from operations in the United States
In billions
Source: Bertelsmann
Bertelsmann’s Wide Reach
Here is a partial list, by category, of Bertelsmann’s activities in the United States:
MUSIC
Arista Records
4BMG Classics/RCA Victor
BMG Direct
BMG Music
BMG U.S. Latin
Private Music
RCA Records label
Reunion Records (50% stake)
Image Recording Co. (20% stake)
Windham Hill (50% stake)
Zoo Entertainment
BMG Songs
Careers-BMG
BMG Music Publishing
Killer Tracks
Reunion Music Group
PUBLISHING, RELATED VENTURES
Bantam Doubleday Dell Publishing
Doubleday Book & Music Clubs
PRINTING, TECHNICAL FIRMS
Berryville Graphics
Delta Lithograph
Dynamic Graphic Finishing
Offset Paperback Manufacturers
MAGAZINES
Parents
YM
Family Circle
McCall’s
Child
Fitness
American Homestyle
VIDEO, OTHER ELECTRONICS
BMG Video
ION Multimedia (50% stake)
NiceMan (50% stake)
Source: Bertelsmann
