Post austerity Bertelsmann steers digital course

Michael Hedges March 24, 2010 (Follow on Twitter)

Austerity cost cutting and a little creative accounting saved media giant Bertelsmann from the revenue demons of 2009. Dividends were cut in half but things will “significantly improve” this year. The “course for growth” is digital.

Europe’s biggest media company, privately held Bertelsmann reported earnings (March 23) and the company appears to have held up, more or less, booking €15.4 billion in gross revenue, off 16% from 2008. Net profit tumbled to €35 million from €270 million. There was much to restructure and write-down.

“We cut costs like never before,” said CEO Hartmut Ostrowski, who ordered austerity slashing across every business unit. “Bertelsmann is clearly in better shape today than it was a year ago and is well positioned for future growth.” Cost controls, he said, saved the company about €1 billion.

Radio and television broadcaster RTL Group remains the Bertelsmann revenue engine. Even considering a 14.5% drop in revenue, RTL Group booked more than half Bertelsmann’s net profit.

A cautious mood prevailed when RTL Group reported 2009 financial results (March 11). “Although the revenue decline has slowed considerably since autumn 2009, we cannot expect a quick recovery of advertising revenues to previous levels,” said the company statement. UK TV investment Channel 5 and Greek Alpha TV were written down 50%, €500 million. Ad markets, said CEO Gerhard Zeiler, remain “light years away from the levels in the years 2006, 2007 and 2008.”

Bertelsmann owns 90.5% of RTL Group, which holds stakes in 45 television and 32 radio stations plus program producer FremantleMedia. Mr. Zeiler said he planned no big acquisitions “in the short term.”

Book publishing division Random House was “stable” and services company Arvato posted a 3% sales decline. Bertelsmann operates in about one-third of the countries in the world.

Gruner + Jahr (G+J), the magazine publisher, took a major revenue hit, gross receipts dropping 9% to €2.5 billion. “It was an extremely difficult year," said G+J CEO Bernd Buchholz. “We have become much leaner and have optimized structures and processes.” G+J shed about 10% of its workforce. This year, he said, things will be better.

Buchholz, who became G+J CEO in January 2009, has been savaged by German media watchers for the cost cutting and characterizations of journalists as lazy – “on the sundecks” – spendthrifts. Journalists are frequently entitled to pursue their projects with all kinds of tools and resources and time and money, even if they never result in a story,” he said in an interview with Der Spiegel (September 25, 2009). “That occasionally clashes with the commercial imperative to be as efficient as possible.”

G+J is Europe’s largest publisher by market share with Stern, Geo and Financial Times Deutschland in Germany, altogether nearly 300 titles in 22 countries. Bertelsmann holds 74.9% of G+J, the Jahr family holding the rest. Rumors that Bertelsmann might jettison G+J have rumbled around for more than a year. Buchholz predecessor Bernd Kundrun, who quit by fax on Christmas Eve 2008, characterized G+J as at the bottom of Bertelsmann’s priority list. Mr. Ostrowski said selling G+J “is not an option.” 

“We are now shifting the focus of our strategic work,” said Mr. Ostrowski in the company statement. “Where the main priority in 2009 was cost and cash management, we will concentrate in this year on steering a course for growth. The emphasis here will be on continuing to develop the wide range of digital activities in all divisions and to gain market share.”