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Middelhoff Ousted From Bertelsmann

The architect of the media conglomerate's e-commerce and new media 'synergy' is forced to resign in a dispute over its future strategy.

July 29, 2002
By Erin Joyce: More stories by this author:

In what is becoming a recurring theme among media conglomerates, German media giant Bertelsmann's Chief Executive Officer Thomas Middelhoff has been fired after a dispute over the company's direction.

In a brief statement released Sunday, the company said Middelhoff would be replaced by Gunter Thielen, 59, as the new chairman and CEO. Siegfried Luther, 57, currently the CFO for the fifth-largest media company, was tapped to be Thielen's deputy.

The company chalked up the reasons for the departure as "differences of opinion" between Middelhoff and the supervisory board "about the future strategy of Bertelsmann AG and the cooperation between the Executive Board and the Supervisory Board." The company is still privately held by members of the Mohn family of Germany.

The 49-year-old Middelhoff's ouster is the third high-profile senior management exit from a major media conglomerate that spent heavily on new media Internet strategies as part of its media ownership plans. Robert Pittman resigned under pressure as chief operating officer of AOL Time Warner last week, and Jean-Marie Messier of French media conglomerate Vivendi Universal was recently forced out as CEO of the water utility-turned-media company.

His departure is also strikingly similar to Messier's exit from Vivendi. Both men spent handsomely to cobble together publishing, radio, television and Internet holdings, including an e-commerce push such as Bertelsmann's 40 percent stake in online book-seller BarnesandNoble.com. Both moved a major part of the company's headquarters to New York from Europe and created a well of resentment about it back in their home countries of Germany and France.

Indeed, Middelhoff was said to be an admirer of AOL Time Warner's old media-meets-new media strategy, which has since faced heavy scrutiny by investors and analysts after dramatic declines in ad revenues, subscriber growth and valuation of its new media assets.

But he also helped bring about Bertelsmann's stake in the AOL Europe joint venture, which AOL Time Warner eventually bought back for just under $8 billion two years ago, a hefty return on Bertelsmann's investment. The cash helped finance some of the company's new media acquisitions and investments.

Middelhoff helped engineer the company's financial stake in one-time free, music file-sharing pioneer Napster. It also recently purchased some assets in the company for $8 million after the Redwood City, Calif.-based Napster declared bankruptcy.

Like other legitimate online music services, however, Napster faces an uphill battle getting online music fans to pony up a monthly fee when they can access an even wider array of free, albeit pirated, music online.

In 2001 Bertelsmann also spent an estimated $30 million to acquire Redwood City, Calif.-based Myplay.com, which provides software for the central storage of music and a content management system. The digital music deal was expected to help Bertelsmann bolster its promotional efforts within its record labels such as BMG, Arista and RCA through a newly-created BeMusic division, which also included online music retailer outfit CDNow.

Middelhoff had been with Bertelsmann since 1986, He was appointed to the executive board of the media enterprise in 1994 and was elevated to CEO in 1998.

In addition to Napster, the $20 billion company owns publishing house Random House, magazine publishing group Grunar + Jahr, RTL Group which includes stakes in radio and television companies.






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