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Bertelsmann AG

Bertelsmann AG

Carl-Bertelsmann-Strasse 270
Postfach 111
D-33311 Gütersloh
Germany
(5241) 800
Fax: (5241) 75166

Public Company
Incorporated:
1835 as Bertelsmann Verlag
Employees: 51,767
Sales: DM20.60 billion (US$13.90 billion) (1995)
Stock Exchanges: Hamburg Munich Dusseldorf Frankfurt
SICs: 2721 Periodicals: Publishing, or Publishing & Printing; 2731 Books: Publishing, or Publishing & Printing; 2741 Miscellaneous Publishing; 3652 Phonograph Records & Pre-Recorded Audio Tapes & Discs; 4833 Television Broadcasting Stations; 5735 Record & Prerecorded Tape Stores: 5961 Catalog & Mail Order Houses; 7812 Motion Picture & Video Tape Production

Bertelsmann AG is the largest media group in Germany and Europe, and the second-largest in the world to the U.S.-based Time Warner Inc. With operations in 40 countries, primarily in Europe and North America, Bertelsmann is active in four main areas: magazine and newspaper publishing; book publishing and book clubs; entertainment businesses in music, television, and multimedia; and industrial businesses in printing, paper production, and other media-related fields. Among its nearly 500 worldwide subsidiaries, the best known operations include Gruner + Jahr. publisher of magazines in Europe and the United States; Bantam Doubleday Dell, a major U.S. book publisher; and such record labels as RCA, Arista, BMG Ariola. and BMG Victor, which jointly make up BMG/Music, ranked number six worldwide among music companies.

The company was founded as a family business in the middle of the 19th century and had already grown to a considerable size before World War II. The significant expansion phase of the company, however, only began after the German currency reform of 1948. when Reinhard Mohn succeeded with the Bertelsmann book club (the Lesering) in introducing a revolutionary form of direct sales to the traditional German publishing market. Bertelsmann grew into an international force on the back of this great success. In 1995 17.9 percent of Bertelsmanns share capital was in the hands of the Mohn family and 10.7 percent belonged to the Hamburg publisher Dr. Gerd Bucerius, of Die Zeit fame; 71.4 percent of the capital stock was held by the Bertelsmann Foundation, established in 1977 by Reinhard Mohn and intended to take over the Mohn familys share in Bertelsmann and appoint the companys management.

Although a multiple media giant in the mid-1990s, the company began in 1835 as a small publisher of evangelical hymn books and devotional pamphlets in Pietist eastern Westphalia, where its headquarters have remained, resisting any suggestions of transferring to Hamburg or Munich. The founder of the company was Carl Bertelsmann, who was born in Gutersloh in 1791. two years after the French Revolution. His father died before he was two years old. His mother was to find him an apprenticeship in a bookbinders business as she had done for his elder brother. To avoid conscription into Napoleons Russian army. Carl Bertelsmann went traveling, going via Berlin to Upper Silesia.

When Carl Bertelsmann returned to Gutersloh in 1815, after Napoleons defeat and exile, he found that his brother had taken on the position for which he had been trained. It was only after his brothers death in 1819 that Carl Bertelsmann was able to set up as a bookbinder in his home town. The little Bertelsmann from Gutersloh, as he was known in the area, soon found a place in the Pietist movement that shaped the eastern Westpha-lian community, and discovered that it particularly needed hymn books for its services. Gradually Bertelsmanns bookbinding business became a book-printing business as well, and then developed into a full publishing house.

This development occurred during the mid-19th century Bie-dermeier period, a time in which German middle-class culture flourished and which was marked in Westphalia by Prussian government. Carl Bertelsmann was a conservative and a royalist faithful to the Prussian king. He supported the latters cause during the revolution of 184849 in which he became politically involved. Generally, though, he dedicated himself to working industriously for his company which, while small, was expanding rapidly. By the time of his death, it employed 14 people.

When Carl Bertelsmann died in 1850, he left behind a wife and son and a considerable fortune. He had laid the foundations for the companys subsequent development, but he was not there to witness the success of the firms bestseller, the Mission-sharfe (Missionary Harp), a hymn book of which two million copies were printed. The first edition appeared in 1853. By this time Bertelsmann was publishing not only Christian literature, but also historical and philological books, as well as novels. It ran its own printing press as before. Heinrich Bertelsmann, who inherited the business from his father, was able, as a result, to build on a very wide foundation that prevented his company from remaining a small publisher of denominational literature.

The printing and publishing house grew considerably in the second generation, thanks in part to the acquisition of other publishing houses that could not hold their own against competition in the market. This tradition of buying up weaker competitors to modernize them and thus make them competitive once more is a policy that Bertelsmann still pursues. By the time Heinrich Bertelsmann died in 1887, his 60 employees had moved into a brand-new building.

The company consequently came under the ownership of the Mohn family in its third generation, after Heinrich Bertelsmanns only child. Friederike Bertelsmann, married Johannes Mohn in 1881. Johannes Mohn was a ministers son from the Westerwald who had learned about the book trade under Heinrich Bertelsmann. Although without personal means and an outsider in Gütersloh, Mohn immediately took on the responsibilities of the business after his father-in-laws death, showing considerable talent in its management. In particular, he expanded the printing side so that the book production could be increased steadily without incurring outside costs.

For this conservative company, with its strong allegiance to throne and church, the German defeat in World War I and the consequent revolution, bringing about the kaisers abdication, was a painful break with the past. Disheartened by events, the 65-year-old Johannes Mohn passed on the responsibility for the business to his son Heinrich, only 26 years old at the time. Like his great-grandfather, grandfather, and father before him, Heinrich Mohn had had the best possible theoretical and practical training for his career as a publisher. Bad health and hard times would, however, prevent him from enjoying his position to the full.

Before the war. Johannes Mohn had already had a taxable income of 100.000 marks a year. He was a millionaire. Despite the family wealth, the Gütersloh printing and publishing house was almost forced to close, not long after Heinrich Mohn had taken it over, because of the effects of galloping inflation in Germany in 1923. For the first time in the companys history, no new employees were taken on. while valued staff had to be laid off. Scarcely had this crisis been overcome than an even greater world economic crisis broke out in 1930.

Heinrich Mohn countered these difficulties and the Third Reich with the help of his Christian convictions. Like his predecessors he was extremely close to the Evangelical Church and in particular to the part of that church, the Bekennende Kirche, or German Confessional Church, which stood by its faith in God in opposition to Hitler. This was the church to which Martin Niemoller and Dietrich Bonhoeffer, spiritual leaders of the German Widerstand. or anti-Hitler opposition, belonged. At the same time Mohn was successfully trading with the German air force, which he supplied with millions of cheap books and pamphlets. When World War II began in 1939, roughly 400 printers, typesetters, and publishers worked for Bertelsmann in Gütersloh. The company had a turnover of 8.1 million reichs-marks in 1941 and by this time had far outstripped its German competitors.

The Nazi authorities, however, disapproved of the companys publication of religious texts and after the war began, Mohns right to print these works was removed. His printing works were provided with less and less paper by the authorities, making it increasingly difficult to operate. When the British forces bombed Gütersloh in March 1945, most of the companys buildings were destroyed. Although a few of the expensive printing machines remained intact so that the business was able to continue, the companys future looked uncertain because Heinrich Mohns health was failing.

Good fortune came to Bertelsmanns aid, when Reinhard Mohn returned home from prisoner-of-war camp earlier than his elder but less-gifted brother, Sigbert Mohn. Neither was to have inherited the company originally, but when the eldest of the four brothers was killed on the sixth day of the war, the position fell to Sigbert. Since he was only to return from Russian prisoner-of-war camp in 1949, his younger brother Reinhard took charge of affairs in Gütersloh in 1947.

After his school-leaving exams at the Evangelical Foundation Grammar School in Gütersloh, Reinhard Mohn had wanted to become an aeronautical engineer, but when the war broke out, he was called up to join the German Africa Corps under General Erwin Rommel. After Reinhard was injured, he was taken prisoner by the American troops.

After his return to Gütersloh, Reinhard Mohn took the company helm with determination. When the West Germans suddenly stopped buying books after Germanys adoption of the deutsche mark in 1948, the young publisher made a daring decision. Instead of hoping for better times like the other publishers of the day, in 1950 he invited the West German retail booksellers to form the Lesering together with Bertelsmann. For a small sum, any reader could become a member of this book club. In return, the reader would receive a certain number of books from C. Bertelsmann Verlag every year.

There had already been book clubs in Germany. What was new about the Bertelsmann Lesering. however, was that the corner bookshops were made partners by the publishing house. With this type of direct sales the bookshops also profited, whereas previous book clubs had only created undesirable competition. Nevertheless there were still those who were critical. Many bookshop owners who did not acquire any Lesering members and consequently did not benefit from the club felt threatened. They were afraid that the Bertelsmann Lesering would take away their customers, but these fears proved to be exaggerated. In fact, the Bertelsmann Lesering won many people over to buying books who previously had not dared to go into bookshops for fear of being shown up for their lack of education.

The Bertelsmann Lesering proved highly successful. It gave the Gütersloh printing and publishing house two decisive advantages over its competitorsa certain guarantee of purchases of its own books and the high capacity use of its printing presses. These two factors combined to make Bertelsmanns turnover soar in the 1950s. Company turnover doubled each year between 1951 and 1953, going from DM7 million to DM30 million. This was a far greater turnover than that of any other book publisher in West Germany. In 1956-57, Bertelsmann was to break the DM100 million barrier. By 1973, Reinhard Mohn saw the figure reach DM1 billion. At the end of this 22-year period, the company employed a workforce of 11,000 at Gütersloh and elsewhere as opposed to an original 500 in 1951.

The success of the company could not be explained by the Bertelsmann Lesering alone. Two additional decisions taken by Reinhard Mohn were to be of great significance. The first, born from necessity, was to cover the companys enormous need for capital; Mohn made his employees shareholders, but without voting rights. This and other socially minded actions made the Gütersloh office, far from West Germanys glittering metropolis, a greatly envied workplace. Mohns second decision was to branch out from books and invest in modern media such as records, magazines, and television to keep pace with changing consumer demands.

These changes all took place with breathtaking speed in the 1950s, 1960s, and 1970s. Most successful was the acquisition of a stake in the Hamburg publishing company Gruner + Jahr, which was gradually built up to a 74.9 percent shareholding in 1976. Not only did the Hamburg sister company bring in excellent results, owing to good management, but it also helped Bertelsmann achieve wider acceptance in the media world following a long period during which the Westphalian family business had been regarded as rather provincial.

The principle behind Bertelsmanns acquisitions was always the same. Reinhard Mohn bought firms that were active in related fields of business and which could be purchased relatively cheaply because of problems they could not solve themselves. He would place a couple of trusted colleagues in leading posts and leave them to work hard on their own. Delegation of responsibility and decentralization of business were his beliefs. For ambitious managers who valued a certain degree of independence, it was and remained a challenge. By 1994 Bertelsmann consisted of around 300 profit centers which operated virtually independently from one another and were coordinated from the groups headquarters in Gütersloh.

During the end of the 1960s, Bertelsmann reached the limits of its growth within the German-speaking world. Mohn decided to expand the business abroad. The first step was to introduce Bertelsmanns Lesering to Spain, with all the other sectors of operationfrom the printing works to the book and magazine publishing companiesfollowing at short intervals. As a result, turnover rose to DM5.5 billion by 1980 and the number of employees rose to 30,000 worldwide. Bertelsmann, transformed into a public limited company because of the colossal growth in its capital requirements, prepared to leap to the top of the media world league.

In 1981, after more than 30 years at the head of the company, Mohn moved from being chairman of the company to being chairman of the supervisory board. For the first time in Bertelsmanns history, Mohn left the operational running of the company to a manager who was not a member of the family. In taking this step he instituted a ruling which he applied to all members of the board and to himself and which would become company policy at Bertelsmann: employees may not remain in their jobs past 60 years of age.

Under its new boss Dr. Mark Wossner (a former assistant to Mohn, who had made his way to the top beginning in the late 1960s in the printing and industrial plant sectors), Bertelsmann AG held the position of the leading media group in the world for a time in the mid-1980s (until Time and Warner merged in 1989). This leadership role was made possible by several acquisitions in the United States, which stretched the Westphalian company to the limits of its capacity. Between 1985 and 1986 Bertelsmann acquired the publishing group Doubleday-Dell and turned the music section of RCA into the BMG (Bertelsmann Music Group). It was a massive package, for which Wossner paid more than US$800 million. This show of strength catapulted Bertelsmann AGs world turnover above DM9 billion, with the group employing more than 40,000 people worldwide.

Bertelsmann also looked to Eastern Europe, where possibilities had been revealed by the fall of the Berlin Wall and the Eastern Bloc. With world turnover of DM13.3 billion in 1989-90, Bertelsmann AG was well equipped to make the most of these developments. In 1990 alone, Bertelsmann spent DM1 billion in the newly opened eastern Germany, by starting a book club, buying the largest regional newspaper there, and acquiring in a joint deal with Maxwell, the publisher of Berlins leading daily newspaper.

The companys major moves into the U.S. market did not immediately pay off. By 1992, 21 percent of Bertelsmanns sales originated in the United States, but only about ten percent of its profits. BMGs flagship RCA label was just breaking even, having gone through three presidents since the takeover and not having had a hit album since 1987s Dirty Dancing soundtrack. Although strong in the country and jazz niche markets, the label lacked a major performer in the contemporary music category, the most popular style of the time. Market share for RCA remained stagnant at about ten percent. BMG was helped by its Arista label, which was performing better than RCA and had a solid 1992 led by Whitney Houstons megabit soundtrack from The Bodyguard, which sold more than 20 million copies. Nevertheless, Bertelsmann was criticized for being too cautious when in early 1992 it was outbid by Britains Thorn EMI in a battle for Virgin Records, which within two years could boast of signing such hit performers as Janet Jackson and Smashing Pumpkins. Other opportunities to bolster the BMG holdings were also missed, such as the bidding for A&M, Island Records, and Chrysalis Records.

In what became Bantam Doubleday Dell following the takeover, Bertelsmann had successfully turned around the Double-day book club operations. Yet, overall, Doubleday had failed to turn a profit for Bertelsmann. Contributing to the book publishing operations difficulties, according to analysts, was Bertelsmanns haste in instituting changes at Doubleday, which alienated the industry establishment in the publishing capital of New York. Nevertheless, Doubleday author John Grisham had a string of best-selling suspense novels, one of which, The Client, became one of the fastest-selling books in publishing history.

In 1993 Bertelsmann restructured itself along product lines, reducing the number of divisions from seven to four: Books, which consisted of Doubleday and book and record clubs; Gruner + Jahr, which included all the magazine and newspaper publishing operations; BMG Entertainment, including music, television, and multimedia; and Bertelsmann Industry, which included printing, paper production, and other businesses. The goal of the restructuring was to instill more cooperation between different operations within the organization and to give the divisions more freedom to make decisions and increased investment authority. Each division was given its own board of directors, and with the exception of Gruner + Jahr the boards were of the British-American modelsingle boards comprised of insiders and outsidersrather than the typical two-tier German model. This novel approach was intended as an attempt to combine the conservatism Bertelsmann had employed to cautiously build itself into a giant and the entrepreneurial freedom that its increasingly American competitors were so well known for.

Bertelsmanns debt remained very low into the mid-1990s, with a debt ratio of 16.3 percent for fiscal 1993-94. Cash would not be a problem for the divisions as they sought out growth opportunities. Overall, Bertelsmann spent DM1 billion (US$674 million) in acquisitions in 1995, most prominent of which were the purchases of a group of magazines from the New York Times Co. and the Italian music publisher Ricordi.

At the same time, in the area of multimedia, BMG Entertainment decided that rather than making acquisitions or developing products and services on its own, it would follow a strategy of partnering with the worlds most innovative software developers. The earliest significant such venture was BMGs partnership with the leading American online service provider, America Online, to set up online services in Germany, France, and England. Bertelsmann financed the 50-50 venture with US$100 million and also gained a five percent stake in America Online with an additional US$50 million investment, while America Online agreed to contribute its knowledge gained through more than ten years in the business.

Overall, Bertelsmann was enjoying steady growth in sales and income and improving results in its U.S. operations in the mid-1990s. Moreover, on April 2, 1996, the company announced plans to merge its television and radio operations with those of Compagnie Luxembourgeoise de Télédiffusion (CLT), a Luxembourg-based broadcaster, prompting speculation that the resulting company would become Europes largest television company and one capable of competing with Time Warner Inc. in Europe. With such merger plans in the making, Bertelsmann seemed poised to better its already enviable position in the media industry.

Principal Subsidiaries

Bertelsmann Club GmbH; Bertelsmann Lexikothek Verlag GmbH; Bertelsmann Online GmbH & Co. KG (50%); Blanvalet Verlag GmbH; EBG Verlags GmbH; Dr. Th. Gabler GmbH; GeoCenter Verlagsvertreib GmbH; Wilhelm Goldmann Verlag GmbH; Gruner + Jahr AG & Co.; Albrecht Knaus Verlag; Mosaik Verlag; Prisma Verlag GmbH; Prisma-Verlag GmbH & Co. KG; Reise-und Verkehrs Verlag GmbH; Schulverlag Vieweg GmbH; Ufa Film und Fernseh GmbH; Friedrich Vieweg & Sohn; Westdeutscher Verlag GmbH; Doubleday Australia Pty. Ltd.; Verlag Kremayr und Scheriau (Austria); BMG Ariola Belgium SA; BMG Ariola Music Ltda. (Brazil); BMG Music Canada; Doubleday Canada Ltd. (49%); BMG Ariola S.A. (France); BMG Ariola Música S.p.A. (Italy); BMG Ariola S.A. de C.V. (Mexico; 75%); Doubleday New Zealand Ltd.; Circulo de Leitores (Portugal); Circulo de Lectores S.A. (Spain); Plaza y Janes S.A. (Spain); Bertelsmann Inc. (U.S.A.); BMG/Music (U.S.A.); Bantam Doubleday Dell Publishing Group, Inc. (U.S.A.); Bertelsmann Printing & Manufacturing Corp. (U.S.A.); Doubleday Book & Music Club (U.S.A.); Bertelsmann Music Group (U.S.A.).

Principal Divisions

Bertelsmann Industry Division; BMG Entertainment Divison; Books Divison; Gruner + Jahr Division.

Further Reading

Barnet, Richard J., and John Cavanagh, Global Dreams: imperial Corporations and the New World Order, New York: Simon & Schuster, 1994, 480 p.

Bertelsmann Gets Bigger, Business Week, April 15, 1996, p. 65.

Bertelsmann: The Media Company that Makes Murdochs Empire Look Small, Economist, April 9, 1988.

Coming to America: The Sequel: Bertelsmann, Economist, November 16, 1991, p. 90.

Edmondson, Gail, and Patrick Oster, Waltz of the Media Giants, Business Week, September 12, 1994.

Ich Bin ein Amerikaner, Economist, June 18, 1994, pp. 69-71.

Landler, Mark, An Overnight SuccessAfter Six Years, Business Week, April 19, 1993, pp. 52, 54.

Lottman, Herbert R., Beyond Books at Bertelsmann: The Worlds Biggest Book Publisher Has Many Other Irons in the Fire, at Home and Abroad, Publishers Weekly, January 23, 1995, p. 17.

Morais, Richard C., The Latest U.S. Media Giant Isnt Even American, Forbes, April 25, 1988, p. 70.

Picaper, Jean-Paul, Bertelsmann: le géant allemand de ledition, Le Figaro, February 20, 1989.

Schifrin, Matthew, The Betriebsergebnis Factor, Forbes, May 23, 1994, pp. 118-124.

Studemann, Frederick, Europes Great Communicator, International Management, September 1992, pp. 34-37.

Dirk Bavendamm

Translated from the German by Philippe A. Barbour

updated by David E. Salamie

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Bertelsmann AG

Bertelsmann AG

Carl-Bertelsmann-Strasse 270
4830 Gütersloh 100
Federal Republic of Germany
(5241) 800
Fax: (5241) 75166

Public Company
Incorporated: 1835 as Bertelsmann Verlag
Employees: 43,500
Sales: DM13.30 billion (US$8.90 billion)
Stock Exchanges: Hamburg Munich Düsseldorf Frankfurt

Bertelsmann is the largest media group in Germany and Europe, and only its U.S. competitors prevent it from being the world leader in its field. The company was founded as a family business in the middle of the 19th century and had already grown to a considerable size before World War II. The significant expansion phase of the company, however, only began after the German currency reform of 1948, when Reinhard Mohn succeeded with the Bertelsmann book club (the Lesering) in introducing a revolutionary form of direct sales to the traditional German publishing market. Bertelsmann grew into an international force on the back of this great success. In 1991 20.5% of Bertelsmanns share capital was in the hands of the Mohn family and 10.7% belonged to the Hamburg publisher Dr. Gerd Bucerius, of Die Zeit fame; 68% of the capital stock was held by the Bertelsmann Foundation, established in 1977 by Reinhard Mohn and intended to take over the Mohn familys share in Bertelsmann and appoint the companys management.

The companys motto, lesen-hören-sehen (to read, to listen, to see), created on the occasion of the firms 150th anniversary in 1985, is appropriate to todays Bertelsmann AG, which has worldwide business interests in all sectors of the media industry, in books, magazines, and newspapers; in records, cassettes, and compact discs; and in television, video, and data banks. However, the company began in 1835 as a small publisher of evangelical hymn books and devotional pamphlets in Pietist eastern Westphalia. That is where its headquarters have remained, resisting any suggestions of transferring to Hamburg or Munich.

Bertelsmann AG combines a solid domestic base in Germany with an international presence that is impressive for a German companyBertelsmann makes more than half its turnover abroad. The founder of the company was Carl Bertelsmann, who was born in Gütersloh in 1791, two years after the French Revolution. His father died before he was two years old. His mother was to find him an apprenticeship in a bookbinders business as she had done for his elder brother. To avoid conscription into Napoleons Russian army, Carl Bertelsmann went traveling, going via Berlin to Upper Silesia.

When Carl Bertelsmann returned to Gütersloh in 1815, after Napoleons defeat and exile, he found that his brother had taken on the position for which he had been trained. It was only after his brothers death in 1819 that Carl Bertelsmann was able to set up as bookbinder in his home town. The little Bertelsmann from Gütersloh, as he was known in the area, soon found a place in the Pietist movement that shaped the eastern Westphalian community, and discovered that it particularly needed hymn books for its services. Gradually Bertelsmanns bookbinding business became a book-printing business as well, and then developed into a full publishing house.

This development occurred during the mid-19th century Biedermeier period, a time in which German middle-class culture flourished and which was marked in Westphalia by Prussian government. Carl Bertelsmann was a conservative and a royalist faithful to the Prussian king. He supported the latters cause during the revolution of 1848-1849 in which he became politically involved. Generally, though, he dedicated himself to working industriously for his company which, while small, was expanding rapidly. By the time of Carl Bertelsmanns death, it employed 14 people.

When Carl Bertelsmann died in 1850, he left behind a wife and son and a considerable fortune. He had laid the foundations for the companys subsequent development, but he was not there to witness the success of the firms bestseller, the Missionsharfe (Missionary Harp), a hymn book of which two million copies were printed. The first edition appeared in 1853. By this time Bertelsmann was publishing not only Christian literature, but also historical and philological books, as well as novels. It ran its own printing press as before. Heinrich Bertelsmann, who inherited the business from his father, was able, as a result, to build on a very wide foundation that prevented his company from remaining a small publisher of denominational literature.

The printing and publishing house grew considerably in the second generation, thanks in part to the acquisition of other publishing houses that could not hold their own against competition in the market. This tradition of buying up weaker competitors to modernize them and thus make them competitive once more is a policy that Bertelsmann still pursues. By the time Heinrich Bertelsmann died in 1887, his 60 employees had moved into a brand new building. However, Heinrich Bertelsmann had no sons, but one daughter, Friederike.

The company consequently came under the ownership of the Mohn family in its third generation, since Friederike Bertelsmann married Johannes Mohn in 1881. Johannes Mohn was a ministers son from the Westerwald who had learned about the book trade under Heinrich Bertelsmann. Although without personal means and an outsider in Gütersloh, Mohn immediately took on the responsibilities of the business after his father-in-laws death, showing considerable talent in its management. In particular, he expanded the printing side so that the book production could be increased steadily without incurring outside costs.

For this conservative company, with its strong allegiance to throne and church, the German defeat in World War I and the consequent revolution, bringing about the kaisers abdication, was a painful break with the past. Disheartened by events, the 65-year-old Johannes Mohn passed on the responsibility for the business to his son Heinrich, only 26 years old at the time. Like his great-grandfather, grandfather, and father before him, Heinrich Mohn had had the best possible theoretical and practical training for his career as a publisher. Bad health and hard times would, however, prevent him from enjoying his position to the full.

Before the war, Johannes Mohn had already had a taxable income of 100,000 marks a year. He was a millionaire. Despite the family wealth, the Gütersloh printing and publishing house was almost forced to close, not long after Heinrich Mohn had taken it over, because of the effects of galloping inflation in Germany in 1923. For the first time in the companys history, no new employees were taken on, while valued staff had to be laid off. Scarcely had this crisis been overcome than an even greater world economic crisis broke out in 1930.

Heinrich Mohn countered these difficulties and the Third Reich with the help of his Christian convictions. Like his predecessors he was extremely close to the Evangelical Church and in particular to the part of that church, the Bekennende Kirche, or German Confessional Church, which stood by its faith in God in opposition to Hitler. This was the church to which Martin Niemöller and Dietrich Bonhoeffer, spiritual leaders of the German Widerstand, or anti-Hitler opposition, belonged. At the same time Mohn was successfully trading with the German air force, which he supplied with millions of cheap books and pamphlets. When World War II began in 1939, roughly 400 printers, typesetters, and publishers worked for Bertelsmann in Gütersloh. The company had a turnover of 8.1 million reichsmarks in 1941 and by this time had far outstripped its German competitors.

However, the Nazi authorities disapproved of Mohns companys publication of religious texts and after the war began, Mohns right to print these works was removed. His printing works were provided with less and less paper by the authorities, making it increasingly difficult to operate. When the British forces bombed Gütersloh in March 1945, most of the companys buildings were destroyed. Although a few of the expensive printing machines remained intact so that the business was able to continue, the companys future looked uncertain because Heinrich Mohns health was failing.

Good fortune came to Bertelsmanns aid, when Reinhard Mohn returned home from prisoner-of-war camp earlier than his elder but less gifted brother, Sigbert Mohn. Neither was to have inherited the company originally, but when the eldest of the four brothers was killed on the sixth day of the war, the position fell to Sigbert. Since he was only to return from Russian prisoner-of-war camp in 1949, his younger brother Reinhard took charge of affairs in Gütersloh in 1947.

After his school-leaving exams at the Evangelical Foundation Grammar School in Gütersloh, Reinhard Mohn had wanted to become an aeronautical engineer, but when the war broke out, he was called up to join the German Africa Corps under General Erwin Rommel. After he was injured, he was taken prisoner by the American troops.

After his return to Gütersloh, Reinhard Mohn took the company helm with determination. When the West Germans suddenly stopped buying books after Germanys adoption of the deutsche mark in 1948, the young publisher made a daring decision. Instead of hoping for better times like the other publishers of the day, in 1950 he invited the West German retail booksellers to form the Lesering together with Bertelsmann. For a small sum, any reader could become a member of this book club. In return, he would receive a certain number of books from C. Bertelsmann Verlag every year.

There had already been book clubs in Germany. What was new about the Bertelsmann Lesering, however, was that the corner bookshops were made partners by the publishing house. With this type of direct sales the bookshops also profited, whereas previous book clubs had only created undesirable competition. Nevertheless there were still those who were critical. Many bookshop owners who did not acquire any Lesering members and consequently did not benefit from the club felt threatened. They were afraid that the Bertelsmann Lesering would take away their customers, but these fears proved to be exaggerated. In fact, the Bertelsmann Lesering won many people over to buying books who previously had not dared to go into bookshops for fear of being shown up for their lack of education.

The Bertelsmann Lesering proved highly successful. It gave the Gütersloh printing and publishing house two decisive advantages over its competitorsa certain guarantee of purchases of its own books and the high capacity use of its printing presses. These two factors combined to make Bertelsmanns turnover soar in the 1950s. Company turnover doubled each year between 1951 and 1953, going from DM7 million to DM30 million. This was a far greater turnover than that of any other book publisher in West Germany. In 1956-1957, Bertelsmann was to break the DM100 million barrier. By 1973, Reinhard Mohn saw the figure reach DM1 billion. At the end of this 22-year period, the company employed a work force of 11,000 at Gütersloh and elsewhere as opposed to an original 500 in 1951.

The success of the company could not be explained by the Bertelsmann Lesering alone. Two additional decisions taken by Reinhard Mohn were to be of great significance. The first, born from necessity, was to cover the companys enormous need for capital; Mohn made his employees shareholders, but without voting rights. This and other socially minded actions made the Gütersloh office, far from West Germanys glittering metropolis, a greatly envied work place. Mohns second decision was to branch out from books and invest in modern media such as records, magazines, and television to keep pace with changing consumer demands.

These changes all took place with breathtaking speed in the 1950s, 1960s, and 1970s. Most successful was the acquisition of a stake in the Hamburg publishing company Gruner + Jahr, which was gradually built up to a 74.9% shareholding in 1976. Not only did the Hamburg sister company bring in excellent results, owing to good management, but it also helped Bertelsmann achieve wider acceptance in the media world following a long period during which the Westphalian family business had been regarded as rather provincial.

The principle behind Bertelsmanns acquisitions was always the same. Reinhard Mohn bought firms that were active in related fields of business and which could be purchased relatively cheaply because of problems they could not solve themselves. He would place a couple of trusted colleagues in leading posts and leave them to work hard on their own. Delegation of responsibility and decentralization of business were his beliefs. For ambitious managers who valued a certain degree of independence, it was and remains a challenge. In the 1990s Bertelsmann consists of around 200 profit centers which operate virtually independently from one another and are coordinated from the groups headquarters in Gūtersloh.

During the end of the 1960s, Bertelsmann reached the limits of its growth within the German-speaking world. Mohn decided to expand the business abroad. The first step was to introduce Bertelsmanns Lesering to Spain, with all the other sectors of operationfrom the printing works to the book and magazine publishing companiesfollowing at short intervals. As a result, turnover rose to DM5.5 billion by 1980 and the number of employees rose to 30,000 worldwide. Bertelsmann, transformed into a public limited company because of the colossal growth in its capital requirements, prepared to leap to the top of the media world league.

In 1981, after more than 30 years at the head of the company, Mohn moved from being chairman of the company to being chairman of the supervisory board. For the first time in Bertelsmanns history, he left the operational running of the company to a manager who was not a member of the family. In taking this step he instituted a ruling which he applied to all members of the board and to himself and which serves as an iron rule at Bertelsmannthat employees may not remain in their jobs past 60 years of age.

Under its new boss, Dr. Mark Wössner, a former assistant to Mohn, who had made his way to the top from 1968 onwards in the printing and industrial plant sectors, Bertelsmann AG held the position of the leading media group in the world for a brief time in the mid-1980s. This was made possible by several acquisitions in the United States, which stretched the Westphalian company to the limits of its capacity. In 1985-1986 Bertelsmann acquired the publishing group Doubleday-Dell and turned the music section of the RCA into the BMG (Bertelsmann Music Group). It was a massive package, for which Wössner paid more than US$800 million. This show of strength catapulted Bertelsmann AGs world turnover above DM9 billion, with the group employing more than 40,000 people worldwide.

Bertelsmann looked to Eastern Europe, where possibilities have been revealed by the fall of the Berlin Wall and of the Eastern Bloc. With a world turnover of DM13.3 billion in 1989-1990 and employment of 43,500 people, Bertelsmann AG is well equipped to make the most of these developments.

In the early 1990s the division of the companys individual product lines is as follows: in the lead, as always, comes book sales, generating a world turnover of DM6 billion. Magazines, publishing, and printing follow in second place, with DM4 billion in sales, and in third place are music and video and electronic media sales, at DM3.3 billion.

The companys strong involvement abroad gives cause for concern, especially that in the United States. Apart from the fact that the publishing and printing group, Bantam Doubleday Dell has not, so far, produced the expected results, extreme vacillations in the dollar exchange rate and an economic collapse in the United States could hinder Bertelsmann considerably. Above all, Bertelsmann has tied up the greater part of its investment capacity since 1986 in the western world. The company relies on its entreprenurial spirit, its audacity, and on the sense of responsibility of its local business managers and employees, who are constantly looking for worthwhile opportunities.

Principal Subsidiaries

Bertelsmann Club; Deutsche Buch-Gemeinschaft; Buchgemeinschaft Donauland; Buch- und Schallplatten- freunde Switzerland; Book Club Associates (U.K.); Circulo de Lectores (Spain); ECI voor Boeken en Platen (Belgium); ECI voor Boeken und Platen (Netherlands); Euroclub Italia (Italy); France Loisirs Belgique (Belgium); France Loisirs (France); France Loisirs (Suisse) (Switzerland); Nederlandse Boekenclub (Belgium, Netherlands); Nederlandse Lezerskring Boek en Plaat (Netherlands); Setradis (France); Doubleday Book & Music Clubs (U.S.A.); C. Bertelsmann Verlag; Gütersloher Verlagshaus Gerd Mohn; Bertelsmann Lexikon Verlag; Blanvalet Verlag; Goldmann Verlag; Albrecht Knaus Verlag; Mosaik Verlag; Orbis Verlag; Prisma Verlag; RV Reise-und Verkehrsverlag; Verlag Heinrich Vogel; Siedler Verlag; Gabler Verlag und Friedrich Vieweg Verlag; Bantam Doubleday Dell Publishing Group (U.S.A., U.K., Australia, New Zealand); Plaza y Janes Editores, (Spain, Columbia) Mohndruck Graphische Betriebe; Bertelsmann Distribution; Belser Offset Druck; Elsnerdruck; maul-belser; Graphischer Grossbetrieb Pössneck GmbH; Druck- und Verlagsanstalt (Austria); Bertelsmann Printing & Manufacturing Corp. (BPMC) (U.S.A.); Brown Printing Co. (U.S.A.); Prisma Presse (France); Eurohueco (Spain); Printer Industria Grafica (Spain); Nuovo Istituto Italiano dArti Grafiche; Cartiere del Garda (France); Arista Records (U.S.A.); BMG Music (U.S.A.); BMG Ariola; BMG Victor (Japan); Sonopress; Telemedia Antenne Bayern; Canal plus; FPS Funk-Programm-Service; RTL plus Deutschland; stern-tv; Ufa Filmproduktion; Universum Film Werner Mietzner; Bertelsmann Fachzeitschriften; Druck- und Verlagshaus Gruner + Jahr; Berliner Verlag; Ärzte Zeitung; MMV Medizin Verlag.

Further Reading

Bavendamm, Dirk, ed., 150 Jahre Bertelsmann: Die Gründer und ihre Zeit, Gütersloh, 1984; Bavendamm, Dirk, 1835-1985: 150 Jahre Bertelsmann; Die Geschichte des Verlagsunternehmens in Texten, Bildern und Dokumenten, Gütersloh, 1985; Bavendamm, Dirk, Bertelsmann, Mohn, Seippel: Drei Familienein Unternehmen, Munich, 1986; Fisher, Andrew, Bertelsmann: going for the bigger steps in the US, Financial Times, July 6, 1987; Russ-mann, Karl Heinrich, Bertelsmann: Manhattan Transfer, manager magazin, November 1987; Manasian, David, Bertelsmanns stairway to stardom, International Management, November 1987; Bertelsmann: The media company that makes Murdochs empire look small, The Economist, April 9, 1988; Morais, Richard C., The latest U.S. media giant isnt even American, Forbes, April 25, 1988; Bavendamm, Dirk, Lebensbilder Mark Wössner, Rheda-Wiedenbrück, 1988; Picaper, Jean-Paul, Bertelsmann: le géant allemand de ledition, Le Figaro, February 20, 1989.

Dirk Bavendamm

Translated from the German by Philippe A. Barbour

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Bertelsmann AG

BERTELSMANN AG

German publishing giant Bertelsmann AG is the world's third-largest media company, behind AOL Time Warner and Walt Disney. Book publishing operations include Random House, Bantam Books, Dell Publishing, Crown Publishing, Ballantine Publishing, Knopf Publishing, Doubleday, and Broadway Books. The firm's entertainment arm, known simply as BMG, oversees all Bertelsmann music, television, and radio holdings, including the RCA/Ariola and Arista record labels. Other non-book publishing segments include Bertelsmann Industrie, which handles printing for the company; magazine and newspaper publisher Gruner+Jahr; and Bertelsmann Book, which markets Bertelsmann's consumer book clubs. In June of 2000, Bertelsmann folded its growing group of e-commerce activitiesincluding its wireless, cable, and broadband operations, as well as BarnesandNoble.com and BOL.cominto a new unit called Bertelsmann eCommerce Group. Its agreement later that year to join forces with music file swapping site Napsterpart of Bertelsmann's plan to become the world's leading content provider on the Internetgarnered global attention.

EARLY HISTORY

Carl Bertelsmann began working as a bookbinder in his hometown of Gutersloh, Germany, in 1819. The bookbinder's initial work consisted of printing and binding hymnals for nearby churches. In 1835, Bertelsmann incorporated his business as C. Bertelsmann Verlag. Bertelsmann died in 1850, leaving his son Heinrich a sizable inheritance and control of the family business. Missionsharfe (Missionary Harp) was first published in 1853 and became Bertelsmann's first bestseller with a circulation of more than 2 million copies. The firm's early success encouraged Heinrich to began expanding beyond religious books to publish historical works and even novels.

Friederike Bertelsmann, Heinrich's daughter, married Johannes Mohn in 1881. Because Heinrich had no male heirs, the Mohn family inherited the business upon his death in 1887. In an effort to increase production at a minimal cost, Mohn expanded Bertelsmann's internal printing operations.

The firm nearly went under twice in the first half of the twentieth centuryonce due to skyrocketing inflation in Germany and another time thanks to World War II. Allied forces bombed Gutersloh in 1945, destroying most of Bertelsmann's 400 printers, typesetters, and publishers there. Reinhard Mohn, grandson of Johannes Mohn, set about rebuilding the company almost immediately. In 1950, to counter a marked drop in book purchasing by Germans, Mohn launched Bertelsmann Lesering, a book club that granted bargains and other perks to members. To boost membership numbers quickly, Mohn also marketed Lesering to retail booksellers in West Germany by offering those who chose to become members a set number of free books each year.

The rapid success of Bertelsmann Leseringwhich amassed 1 million members in less than four yearsset the stage for additional growth. Bertels-mann bought a small portion of Gruner+Jahr, a publishing company based in Hamburg in 1969, and 10 years later upped its stake to nearly 75 percent. Bertelsmann also entered the American book publishing arena by purchasing a controlling stake in thriving U.S. paperback publisher Bantam Books. The company also ventured outside of book publishing for the first time by acquiring the Arista record label from Columbia Pictures.

GLOBAL GROWTH AND DIVERSIFICATION

A string of acquisitions during the 1980s vaulted Bertelsmann to a leadership position among global media and communication companies. For example, Bantam became a wholly owned subsidiary of Bertelsmann in 1981. The firm also added to its U.S. holdings with the $475 million purchase of Doubleday, a leading U.S. book publisher, in 1986. The deal gave Bertelsmann control of the well-known Dell paperbacks line, along with various book clubs and retail stores. To supplement its growing music holdings, Bertelsmann bought 75 percent of RCA's record division for $330 million, instantly becoming the world's third largest recording company. Fortune magazine ranked Bertelsmann as the world's largest publishing company in 1991.

Further diversification came in 1993 when Bertelsmann and TeleCommunications Inc. (TCI) forged a joint venture to establish a cable television channel for music and video distribution in the United States. The 1995 purchase of a minority stake in America Online (AOL) marked Bertelsmann's first Internet venture. The $50 million investment turned into a $5 billion windfall and established the groundwork for Bertelsmann's future alliances with AOL and its later move into the e-commerce arena.

Late in 1997, Advance Publications Inc. began negotiating its sale of Random House with Bertels-mann. At the time, the $1.4 billion deal was the largest in industry history. It was finalized in July of the following year, leaving Bertelsmann with control of nearly one-third of all hardcover bestsellers and half of the leading paperback books in the United States.

FOCUS ON E-COMMERCE

Although Bertelsmann had dabbled in various online ventures in the mid-1990s, it wasn't until a few years later that a concrete e-commerce plan emerged. In 1998, the firm paid roughly $200 million for a 50-percent stake in BarnesandNoble.com to shore up its position in the U.S. online book industry and launched its own retail book site, BOL.com, to compete with Amazon.com in Europe. After deciding to focus more closely on its Internet ventures, the firm sold off the pay television business it had previously acquired and made plans to establish its own high-speed Internet service provider (ISP) operation.

By 2000, Bertelsmann was pumping more than $13 billion into its Internet operations. In May of that year, the firm played a role in the creation of Terra Lycos, formed when Spain's Terra Networks paid $12.5 billion for Lycos, one of the largest U.S.-based World Wide Web gateways. Bertelsmann agreed to spend roughly $1 billion on advertising and other Internet services from Terra Lycos over the next five years in exchange for access to the 50 million customers already using either Terra Networks or Lycos. The next month, Bertelsmann merged its increasingly diverse e-commerce operations into a single entity known as Bertelsmann eCommerce Group. The firm lured Adreas Schmidt away from its European partnership with AOL, known as AOL Europe, to head up the new unit and, according to a June 2000 article in The Economist, charged him with the task of pushing "everything in the Bertelsmann stablefrom books and magazine to television programs and compact discsinto customers' laps via the Internet."

After honing its Internet focus to selling online content rather than services, Bertelsmann divested several peripheral holdings including MediaWays, a German ISP it had previously acquired, to Spain's Telefonica for $1.6 billion. Bertelsmann then bought online music retailer CDNOW and, in perhaps its most daring move to date, joined forces with music indexing site Napster in October of 2000. The latter move happened despite widespread controversy over alleged copyright infringement regarding the technology that allows Napster users to exchange songs for free. One of the plaintiffs in the copyright infringement suit against Napster, Bertelsmann agreed to drop its charges when Napster begins charging users for file sharing capabilities. To help speed the development of this fee-based service, Bertelsmann extended Napster roughly $50 million in credit.

Continuing its efforts to become the world's leading Internet content provider, Bertelsmann upped its stake in RTL Group, the largest television firm in Europe, from 30 percent to 67 percent in February of 2001. According to BusinessWeek Online, Bertels-mann "is girding itself for the day when Internet users routinely could trade their favorite episodes of Benny Hill as easily as Napsterites now swap tracks by Eminen. To fund the purchase, privately owned Bertelsmann made an unprecedented move by swapping a chunk of its own shares, leaving RTL's parent, Groupe Bruxelles Lambert, holding a 25 percent stake in Bertelsmann. Whether or not Bertelsmann achieves its lofty e-commerce goals remains to be seen. However, it willingness to sell off a large block of shares, as well as its pursuit of alliances with upstart ventures like Napster, certainly are indicative of the importance the media giant is placing on this segment of its business.

FURTHER READING:

Bertelsmann AG. "Bertelsmann Chronicles." Gutersloh, Germany: Bertelsmann AG, 2000. Available from www.bertelsmann.com

"Bertelsmann AG." In Notable Corporate Chronologies. Farmington Hills, MI: Gale Group, 1999.

"Bertelsmann Completes Acquisition of CDNOW." PR Newswire. September 1, 2000.

"BertelsmannUnder e-construction." The Economist. June 10, 2000.

Christman, Ed. "BMG Owner Investing in Book Net Site." Billboard. October 17, 1998.

Ewing, Jack. "Bertelsmann: Building a Video Napster." BusinessWeek Online. February 5, 2001. Available from www.businessweek.com

Gibney, Frank. "Middlehoff's Vision: The Bertelsmann Boss Pulls Off a Shocking Deal with Renegade Napster. And He's Just Warming Up." Time International. November 13, 2000.

Kesgin, Tayfun and Howell Llewellyn, et al. "Bertelsmann in Online Alliance." Billboard. May 27, 2000.

Kontzer, Tony. "BMG's Man on the MoveAndreas Schmidt Plays a Part in the Music Industry's Digital Awakening." InformationWeek. January 1, 2001.

"The Man Who Would Be CoolFace Value: Thomas Middle-hoff, Napster's Music-Industry Ally." The Economist. March 10, 2001.

SEE ALSO: AOL Time Warner Inc.; E-books; Electronic Publishing

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