The Telegraph
Since 1st March, 1999
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Bertelsmann profits surge

Los Angeles, Sept. 4: German media conglomerate Bertelsmann AG reported that its first-half profits more than doubled, owing in part to the sale of its remaining stake in AOL Europe, but said it plans to retreat from online ventures and focus on its older businesses.

Bertelsmann, which owns Random House Inc. publishing and the BMG record company, said net income for the first six months of the year surged to $1.6 billion, up from $575 million for the period a year earlier. Six-month sales declined to $8.8 billion, down 5 percent from $9.3 billion a year ago.

Much of the profit surge came from proceeds of Bertelsmann’s sale of shares in online service AOL Europe. Profits would have been even higher, but Bertelsmann said it set aside an estimated $ 1 billion to account for a possible write-down of its purchase of Zomba Music Group, which distributes music by such acts as Britney Spears and 'N Sync.

Bertelsmann is purchasing the remaining 75 per cent stake in Zomba, for about $ 3 billion, as a result of a deal it agreed to a decade ago. But the purchase is by far the most expensive record label acquisition in music history and analysts say the exorbitant price virtually ensures that Bertelsmann’s long-suffering music division, which appeared poised for a turnaround this year, will be swimming in red ink for years to come. European regulators, who had rejected Bertelsmann’s planned merger with rival music company EMI Group last year, signed off on the Zomba deal Monday, saying it “does not give rise to competition concerns.”

Bertelsmann’s financial release comes amid an abrupt strategy shift that began five weeks ago with the unexpected ouster of chief executive Thomas Middelhoff, who had been leading the privately owned, conservative media giant to invest in emerging technology and undertake a public stock offering.

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