You may think multitasking is a great way to ruin a classic movie. But Bertelsmann believes otherwise. Next month Europe’s media giant will test just such a state-of-the-art interactive system with a private cable company in Cologne. In a complete about-face from an early foray into pay TV–when its plan to build a pay-per-view broadcast channel with Germany’s Kirch Group was thwarted by European anti-monopoly rules–it has sold all but a 5 percent stake in their joint venture and is now staking its technological future on the Internet. “Each product line and profit center is affected,” says Klaus Eierhoff, executive board member for multimedia.
Not that Middelhoff has to do it single-handedly. Helping him bring Bertelsmann online are such notables as the Cat in the Hat and rap artist Puff Daddy. Thanks in part to its 1998 purchase of America’s Random House–that was Middelhoff’s idea, too–Bertelsmann owns millions of book titles by authors from Albert Camus to Michael Crichton and Jean-Paul Sartre to Dr. Seuss. BMG Entertainment, with some 200 record labels worldwide, boasts pop divas Whitney Houston and Annie Lennox as well as Puff Daddy. Bertelsmann also publishes dozens of magazines, including Stern and Parents, and jointly runs and produces programming for CLT-UFA, Europe’s largest private broadcast group.
The globetrotting CEO–he lives in Manhattan one week each month–is also pursuing a branding strategy different from the likes of Disney and McGraw-Hill, two media rivals that like to see their names in print. Many of Middelhoff’s Infobahn activities are joint ventures with a proven brand–Barnes & Noble in the United States, AOL and search engine Lycos in Europe. Eierhoff says it is more efficient to piggyback on known Internet brands than to build up the Bertelsmann name from scratch. “It’s an intelligent partnership strategy,” says James Eibisch, director of Internet service research at IDC in London.
As Bertelsmann migrates onto the Web, it must first teach its 25 million loyal book-club members the joys of ordering online. Before long, even that will seem primitive as the transmission of digitized books and music gets cheaper and easier, allowing for print on demand. That, in turn, will help Bertelsmann tap into its own library of tens of thousands of out-of-print books when it costs too much to do a normal print run. Eierhoff thinks this renaissance of the backlist could boost e-commerce sales, projected to hit $706 million in three years, by 15 to 20 percent. Bertelsmann’s production unit has designed a machine for printing on demand, and it will begin offering such a service next spring in the German market, followed by the United States.
It sounds great. But to get the Internet talent needed to make it happen, you have to dangle more than forecasts. The kids want stock options–one reason that Middelhoff likes to list his multimedia ventures. Going public also gives quick access to further acquisitions via stock swaps. He’s off to a good start. Pixelpark raised ¤53.8 million and its shares surged 78 percent in the first week of trading, even though a general market slump led several other tech companies to cancel IPOs in Germany this month. Founder Paulus Neef decided to hook up with Bertelsmann after presenting Middelhoff with three growth plans at a Berlin restaurant on a warm summer evening in 1997. His future boss pointed to the most aggressive one. “I felt immediately he’s willing to break the rules,” Neef says.
Bertelsmann is also prowling for fresh talent through an $80 million venture-capital fund in Santa Barbara, California. One of the fund’s investments turned out to be so hot that the company itself bought 50.1 percent last week. Started by two German college kids in the proverbial family basement, Dealpilot runs a Web site to compare online prices. Cofounder Christopher Munchhoff, still a fresh-faced 23, got a quick lesson in surrendering his freedom when his new CEO shushed him at a press conference when he tried to answer questions about sales forecasts. “There’s going to be a trade-off,” he shrugs afterward. “We need a powerful partner to grow.”
Another hot investment for the fund: NuvoMedia, maker of an electronic device called Rocket eBook. Forget lugging 15 pounds of pulp on your next vacation. A gray novel-shaped machine with a touch screen, it holds up to 90 digitized books and retails for $329. About 3,000 titles are available in English already. NuvoMedia will launch a German version at the Frankfurt Book Fair this week.
In one respect, Bertelsmann looks just like a start-up: it’s not making any money in multimedia. Yet the unit Eierhoff runs is growing like crazy, with sales expected to triple in three years to $2.6 billion. And as the buttoned-down publisher learns Internet geekspeak, it is also finally forcing its mini-fiefdoms to speak to each other. Bertelsmann has no idea whether a subscriber to Stern also surfs on AOL or orders bestsellers from BOL. Last year Eierhoff put up corporate money to design software that shares client lists, and next spring in Germany he will test the payback in terms of new business generated. “Far more than half our customers can be targeted for additional products,” Eierhoff says.
It’s not easy for a conglomerate to think like a Netizen. Internet purists are aghast that Middelhoff is chairing a movement to regulate e-commerce. They may as well get used to hearing his views, though. For while Bertelsmann may have come late to the Internet, there aren’t many big companies that are taking it more seriously.
