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End Of The Media Road For Middelhoff NEW YORK - Of all the years to dominate a global media colossus, this may be one of the worst. Over the weekend, Bertelsmann AG forced out CEO Thomas Middelhoff after a disagreement over corporate strategy--a move that might force the media prince into the arms of a telecom company. The Middelhoff ouster comes after the early retirement of Gerald Levin at AOL Time Warner (nyse: AOL - news - people ), the ouster of Jean-Marie Messier at Vivendi Universal (nyse: V - news - people ), the devastation of Leo Kirch's media empire--and even the semi-public chastisement of Michael Eisner at The Walt Disney Co. (nyse: DIS - news - people ). But unlike those conglomerates, where the problems are well known and the public share prices have plunged, the dissension and ouster at the privately held German firm comes as a surprise.
Vivendi and AOL both foundered by betting too heavily on the Internet and hazy visions of the future. But, despite its purchase of Napster (for a relative pittance), Bertelsmann seemed to be holding tight to its traditional markets. The one recent change--and this change was coming slowly--was Bertelsmann's purchase last year of Groupe Bruxelles Lambert, a Belgian investment company that controls RTL, one of Europe's biggest television companies. The deal that was seen as a stepping stone to Bertelsmann going public, but not for several years. The Gütersloh, Germany-based Bertelsmann named Gunter Thielen, 59, a longtime executive who runs the company's media services division, Arvato, to replace Middelhoff, 49, and assigned Siegfried Luther, 57, as his deputy. Bertelsmann has been controlled for decades by the Mohn family and by a family-controlled non-profit foundation. Since World War II, the family has fiercely guarded the company's independence and has financed growth from within rather than by tapping the public markets. It owns all or large parts of BMG (which includes Arista Records and RCA Music Group), barnesandnoble.com (nyse: BNBN - news - people ) and dozens of European media properties such as Gruner & Jahr and Pearson TV. In recent years it tried and failed to purchase British record company EMI.* But it is still one of the largest music producers in the world, as well as U.S. publisher Random House. Bertelsmann employs more than 80,000 worldwide, the company says. Middelhoff also engineered some sales which seem to have worked out well. Bertelsmann sold its 50% stake in AOL Europe back to AOL two years ago for $6.8 billion** at the height of the Internet bubble, and unloaded its stake in a moneylosing German pay-TV venture that contributed mightily to the bankruptcy of Germany's Kirch Group earlier this year. Middelhoff also recently put a string of smaller units up for sale in a drive, all perhaps as a prelude to what the Europeans call a flotation of company shares by 2005. Like all media companies, Bertelsmann is likely suffering from a global decline in ad sales. Its music assets have almost certainly been hit by the slow growth in that industry, caused at least in part by the advent of Internet-based services like Napster and new CD-burning technology. But Middelhoff can hardly be faulted for either phenomenon. The rift between Middelhoff and the board may be as simple as Middelhoff looking for another job. There have been press reports that Deutsche Telekom (nyse: DT - news - people ), Europe's biggest phone company, would hire Middelhoff to eventually replace its recently ousted chief executive, Ron Sommer. The former German state monopoly replaced Sommer two weeks ago with former chairman Helmut Sihler, 72, who was given six months to cut Telekom's debts and find a long-term successor. If those reports are true, that would mean that Middelhoff is at least flirting with the idea of leaving the company of Christina Aguilera, John Updike, P. Diddy, John Grisham, Toni Morrison, Kenny G. and The Price Is Right, to run a telecom outfit. That fact alone may say more than anything about the travails of the world's media princes. * An earlier version of this story stated incorrectly that Bertelsmann owns EMI. ** An earlier version of this story stated incorrectly that Bertelsmann sold its 50% stake in AOL Europe back to AOL for $6.8 million. More From ForbesKeeping It In The Family 05.23.02Dynasties supposedly are built to last, but media heirs may face powerful inducements to cash out.
The World's Best Whiskey Tours - 8/29/02 12:01:00 AM ET Whether you're a fan of single malt or sour mash, a visit to a distillery will give you a warm glow. Sony-Ericsson Venture In Jeopardy - 8/30/02 2:41:37 PM ET Ericsson's CEO threatens to bail out if handset sales don't pick up. He might've made it worse. Mutual Fund Investors Leave The Building - 8/30/02 2:29:10 PM ET Nearly $53 billion left the funds in July. Maybe it should have stayed for the rally. America's Best-Dressed Billionaires - 8/26/02 12:00:00 PM ET Simon Doonan, Barneys New York's creative director, picks the five most stylish American billionaires. WorldCom Ex-CEO Made $11M Off Salomon IPOs - 8/30/02 4:20:56 PM ET Top current and former WorldCom execs made millions from IPOs made available by Salomon, records showed.
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