Bertlesmann: Before, during and after Middelhoff|Business Strategy|Case Study|Case Studies

Bertlesmann: Before, during and after Middelhoff

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Case Details:

Case Code : BSTR061
Case Length : 18 Pages
Period : 1994 - 2003
Organization : Bertlesmann
Pub Date : 2003
Teaching Note :Not Available
Countries : Europe
Industry : Media and Entertainment

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Middlehoff Era - Changing Strategies

The answer to the above problems came in the form of Middelhoff, who took charge as the head of the strategy and corporate development division at Bertelsmann in 1994. This marked the beginning of a phase of drastic changes at the company.

Inspired by Steve Case, the chairman and CEO of AOL (one of the most popular online services in the world), Middelhoff decided to steer Bertelsmann towards digital media and the Internet. He convinced the Bertelsmann board to buy a 5% stake in AOL for $50 million in late 1994.

In early 1995, the company established AOL Europe and began offering online services in Europe. In 1996, Bertelsmann founded MediaWays, Germany's second largest Internet provider, in collaboration with DaimlerChrysler Services AG, an IT services provider. Middelhoff undertook many more online initiatives as he believed that the future of the media industry lay with the Internet...

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The Middelhoff Era - Problems & Internal Clashes

Even as Bertelsmann worked towards strengthening its position in the digital era, reports of various problems at the company began cropping up in the media. According to analysts, during mid 2001, when the advertising industry faced a severe downturn and magazine advertisement sales across Europe fell drastically, Bertelsmann was also affected.

In the first four months of 2001, the number of pages featuring advertisements fell by 39% at Fast Company Magazine (a US-based business magazine). At Small-Business Magazine Inc., another Bertelsmann subsidiary, advertisement revenues fell by 31% (to $21.7 million) in the second quarter of 2001.

Since a few of the magazines were acquired in 2000 only, their start up costs, along with the advertising slump eroded Bertelsmann's profits in 2001. During the same period, BMG Entertainment also faced problems. Reportedly, it had no new 'hot' record releases during 2001. In addition, it was suffering due to costly severance agreements with a few top executives who left over the Napster issue...

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