RealTime IT News

Bertelsmann, AOL End Joint Ventures

In a move that surprised few, Bertelsmann AG and America Online Inc. Friday announced plans to restructure their global joint ventures in a deal worth up to $8.5 billion.

The speculation regarding Bertelsmann stepping out of the AOL Europe and AOL Australia were verified with the new agreement, though the two were reportedly in talks over the last several months. Bertelsmann will sell its 50 percent stakes in the European and Australian joint ventures for as much as $8.25 billion. In addition, the media house will pay $250 million for four years of distribution on AOL's (AOL) global network.

Bertelsmann will use the profits from the sale of its interest to start new e-commerce projects and to build on existing e-commerce and content activities, the media house said in a statement. Thomas Middelhoff, Bertelsmann's chairman and chief executive officer, said that the deal will allow the company to propel its goal to "fully digitize Bertelsmann's media properties and build our position as one of the world's leading Internet content and e-commerce companies."

AOL, on the other hand, says that the restructuring helps it to "more aggressively serve the global market" and pursue Europe's expected 125 million Internet audience, a target which the region is projected to reach in 2004. According to AOL, AOL Europe now reaches more than 3.8 million households.

AOL President and Chief Operating Officer Bob Pittman said the mega ISP will accelerate AOL Europe's expansion into new regional markets and develop access to new platforms in its AOL Anywhere strategy.

In the distribution deal, Bertelsmann content will appear on the AOL and AOL Europe networks. The previous e-commerce agreements between the two will be extended into Bertelsmann's music and other properties such as forgetmusic.com, AndSold, evenbetter.com, and Bertelsmann's music and books clubs. Digital music downloads and digital rights management will also play into the deal and support Bertelsmann's stated goal of becoming the world's top music company.

Broadband will also be included in the agreement, with Bertelsmann offering broadband platform support for AOL and AOL Europe. While AOL will be a preferred partner, the deal is not exclusive.

Bertelsmann called the decision the result of extensive examination of its Internet strategy and an evaluation that ISP services were outside of its core interests. Middelhoff said that content and e-commerce are now the focus.

While AOL Chairman and Chief Executive Officer Steve Case called the move the extension of a long relationship, the buy out was assumed to be the product of tensions following the AOL-Time Warner for a merger. However, both sides said that talks had actually begun independently late last year, prior to any merger discussions between AOL and Time Warner.

Michael Lynton, president of AOL International, will take the helm at AOL Europe as acting CEO, with its current president and CEO, Andreas Schmidt, will stay on through the transition. However, AOL's Case and Pitmann said that the European property will remain independent because it will be led by local management with local implementation.

AOL would pay for its new full ownership of the global properties, in cash or stock, by January 2002. Speculation is still swirling around the possibility of an IPO for both AOL Europe, and for Bertelsmann's separate European e-commerce venture BOL.

In January, Middelhoff departed from AOL's board of directors, citing AOL's $182 billion merger with top media company Time Warner Inc. as the reason for the departure.