No Stand Alone E-C for Bertelsmann

Media giant Bertelsmann announced on Tuesday it would phase out its e-commerce businesses that are losing money but would hang on to its stake in online book seller .

The announcement followed a flurry of press reports over the weekend and on Monday that said the media giant was mulling offers to sell off its network of sites, which sell music and books in European markets.

However, the company said today it had no plans to slice off its interest. (The end of Napster, the fabled music-swapping service it had bankrolled, was sealed during bankruptcy proceedings, however. See separate Napster story.)

Although a company official confirmed that Bertelsmann had looked into a
possible sale of the European book-selling sites to, today’s announcement spells out what’s in store for the sites in Germany, Switzerland, the Netherlands and Sweden. If the sites aren’t sold off, they will be shuttered. The decision would affect about 140 employees.

Bertelsmann said its marketing and e-commerce DirectGroup division would now focus exclusively on its worldwide media club businesses that can integrate with Internet channels profitably. Stand alone sites such as its offerings in European markets won’t make the cut.

The latest news provides new details on the media company’s exit from e-commerce ventures that its recently-ousted chief executive Thomas Middelhoff had once championed.

Now, with cash flow in a squeeze amid uncertainty in global markets, the company is trying to beat itself a better return on investment find an exit after pouring millions into a range of e-commerce ventures. The bottom line to map its strategy: If it’s not nailed down to an offline commerce venture, and heading for a profit, it’s gone.

Businesses not affected by the decision include U.S.-based BeMusic division,
the parent of online music-selling business CDNOW, whose assets have been
integrated with the company’s BMG MusicService monthly music club. In
addition, Bertelsmann said it would hold on to its 36.2 percent stake in
online bookseller, which, despite being a separate
company to the offline book seller, partners with it to sell books.

The announcements of which assets would stay is sure to be keenly watched by other media companies. France’s media conglomerate Vivendi Universal, another major media company with Internet ventures, is in the midst of slashing the money-losing ventures — but also looking at which ones may have cash-generating promise.

Bertelsmann said DirectGroup would hold on to its BOL joint venture in Italy and to its Chinese operations. The keyword: both Internet properties are fully integrated into their respective local book and music clubs.

Ewald Walgenbach, DirectGroup’s chief executive, said the Internet remains an integral part of the company’s club businesses and growth plans.

“The Web is now used for new member recruitment, customer retention, and as an additional marketing and sales channel. Today, club members order on all the various channels, i.e. catalogs, shops, phone and the Internet,” he said in a statement.

“Profitable club ventures like in France, Spain or the US that managed to significantly improve results within the last year do prove the viability of the membership-based business model.”

In addition, 108 of the company’s music and entertainment clubs now offer their members online-shops, he added, and several clubs recruit up to 40 percent of their new members on the Web. Bertelsmann reckons that Internet channels help boost its book and music clubs’ sales by anywhere between 4 and 25 percent. The company said its clubs also generated about 75 million euros (US $74 million) on the Internet. Still, for all the sales it generated, the division is still expected to lose money on an estimated $119 million in sales during 2002.

“As for the division’s strategic priorities, our key message is: DirectGroup is concentrating on becoming profitable – as a group – in its core businesses and markets (Europe, America, Asia), based on future-proof business models,” said spokesman Gerd Koslowski.

“Most of our clubs all over the world are already operating at a profit. Meanwhile, we are looking into strategic options for all ventures – successful as they are – that are not part of our immediate core business.”

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