Bertelsmann AG, based in Gtersloh, Germany,is the leading European challenger to the US dominance of the world’s media industry. It is also the only one in a position to offer a complete multimedia market package – from content to Internet software tools. It plans to launch the latter at this year’s CeBIT Hannover computer fair. Some 57,000 employees in more than 200 companies in 40 countries produce Bertelsmann content for a global customer base. Bertelsmann’s long list of acquisitions and joint ventures, ranging from the purchase of New York publishing house Bantam Doubleday Dell to the integration of Arista and RCA music labels into the Bertelsmann Music Group, have enabled the company to triple its sales over the last decade and report turnover of more than $13,350m for the 1994-1995 fiscal year. Now the company has the clout and the content to make the transition from media company to multimedia player, says Mark Wssner, Bertelsmann president and chief executive. The goal, Wssner stresses, it to gain an active hand in shaping the way into the interactive media communications and service society. Eventually, Wssner says, Bertelsmann plans to offer its on-line service on its own independent network, a decision he says would enable it to cut telecommunications costs and emerge as a network provider of data transmission services.
Lucky few
This strategy is much more than wishful thinking, analysts note. Indeed, since Bertelsmann exercises considerable control over both its content and its electronic distribution, the company is one of a lucky few where the convergence of traditional publishing and electronic publishing can result in more business opportunities than internal conflicts. For Thomas Middelhoff, the youngest Bertelsmann board member and person largely responsible for the company’s shift to multimedia, believes electronic publishing and electronic distribution are future growth areas that will increasingly have a direct impact on the company’s quality of business. They are also key links in Bertelsmann’s internal value chain that begins with content and ends with hardware. A traditional publishing house founded over a century ago, Bertelsmann surprised the industry in March 1995 with its formal entry into the multimedia business through formation of an on-line service in partnership with America Online Inc. The 50:50 joint venture, known for the moment as AOL/Bertelsmann Online, was formed to introduce a more European brand of AOL services to subscribers in the UK, France and Germany. The service was already introduced into the German and British markets. Bertelsmann, which has 50m book and music club customers worldwide, has agreed to contribute some content and invest over $100m to launch the $206m service – and develop the network by which to deliver it. The venture has taken on two new partners, Deutsche Telekom AG and the publishing house Axel Springer Verlag AG. Telekom’s decision to take a 20% stake in the company is subject to approval by the Cartel Office – Germany competition watchdog. With so much financial muscle to back it up, many analysts are convinced AOL/Bertelsmann has what it takes to challenge market giants including CompuServe Inc and Microsoft Corp. AOL/Bertelsmann must attract 1m subscribers to its German service by the end of the decade, the minimum required to break even. Bernd Schiphorst, head of AOL/Bertelsmann in Hamburg, expects 100,000 subscribers by end-1996 and is confident his will emerge the country’s leading on-line service and further capture 30% of the world market.
By Peggy Salz-Trautman
To accomplish this, AOL/Bertelsmann has hired 50+ employees in Hamburg and established a customer service center for subscribers in Dublin, Ireland. AOL, the number one on-line service in the US, reports 10,000 new subscribers daily and the addition of between three and four new content providers per week. In Germany, Schiphorst notes, AOL/Bertelsmann has received calls from up to 1,000 interested content providers a week. The problem is not de
ciding content… but deciding which content is of general interest and which targets special interests. To date content on AOL/Bertelsmann includes a number of practical services such as home banking, travel tips and news wire reports as well as a long list of magazines and publications including Stern, Geo, Capital, Frankfurter Allgemeine Zeitung, and the popular research work Lexikon. Expected newcomers are airline Lufthansa AG and Germany’s largest automobile club, ADAC. We see a great number of synergies, but we don’t want to limit ourselves for a second to only Bertelsmann content, Schiphorst says. We want to offer rich content no matter the origin. But a problem AOL/Bertelsmann faces is a bottleneck in its capacity to prepare this content for delivery via the Internet. For this reason, it has begun to examine more closely the advantages of outsourcing and technology partnerships. Indeed, this was the chief motivation behind the company’s little-known decision last October to take a 50% stake in Pixelpark GmbH in Berlin, a cutting edge multimedia company and maker of the Wildpark Internet service, a trendy news and lifestyle service for 15- to 30-year-olds. In addition to offering Wildpark exclusively on AOL/Bertelsmann Online, Pixelpark will also assist other providers prepare their content for distribution as an on-line service. But with the delivery problem licked with the launch of its own on-line venture, the challenge to Bertelsmann and all media companies at a similar stage of development is how to make content independent of any particular delivery channel. The decision, says Hans Kreutzfeldt, managing director, Bertelsmann Electronic Publishing in Munich, is between CD-ROM and on-line. Ideally, Kreutzfeldt notes, it should be both. Kreutzfeldt’s company, which is growing at 50% a year and broke even for the first time last year, is currently examining ways to reposition the Lexikon, Bertelsmann’s most popular encyclopedic title, for the Internet. This summer, he says, consumers will be able to choose and download information from a Lexikon server connected to AOL/Bertelsmann Online. As a result, consumers will update the content of the original CD-ROM and the title itself will become more interactive. More important than content and its delivery via the Internet, however, will be the tools and know-how by which publishers can successfully recast their content for on- line services. Developing such software tools enables Bertelsmann and third parties to publish content on the Internet, Middelhoff stresses. For this reason, Telemedia, Bertelsmann’s multimedia implementations provider, is in the midst of a virtual renaissance. Established in 1982, the company is now undergoing a reorganization that will enable it to emerge as provider of standard software offerings for Internet content providers. At first, Middelhoff says, the company will focus on large Internet projects for large customers.
Building block
In its second phase of development, Telemedia will be able to provide the software, modeled much like building blocks, to small and mid-size companies. Finally, Telemedia will be in a position to offer Internet access, additional Internet services and products to its customers. Telemedia will open the door to the Internet for our customers, Middelhoff says. With it we can not only reposition our content… but we can offer our expertise in all areas from content to customer care to companies interested in bringing their own content to the Internet. In future, Middelhoff stresses, paving the way for companies to the Internet will be as important a service as developing the actual content. Other Bertelsmann multimedia activities include BMG Interactive Entertainment, a unit that produces and licenses entertainment software; Bertelsmann Fachinformation GmbH, which concentrates on informative titles for CD-ROM, on-line and CD-I; T1 New Media/Bertelsmann, which co-operates with partners such as Novell Inc, Philips Eelectronics NV and the Metropolitan Museum of Art to produce title
s on CD-ROM and CD-I; Sonopress, which presses CD-ROMs; and Multimedia Service International, overseeing distribution of multimedia titles and looking after on-line subscribers. With everything falling into place, Middelhoff says the firm is gearing for the next challenge: bringing Bertelsmann content to the world market. We see ourselves as a print company in a critical stage of transition, Middelhoff says: In the future every publishing company will have to go this way… fortunately we’re one of the first.
