Industry perception is that the conglomerate—which less than three years ago experienced its highest music marketshare ever—has made one wrong move after another.


Bertie Wants Cost-Cutting…And What Bertie Wants, Bertie Gets
Oh what a year it’s been for BMG… and it just seems to be getting better and better.

On the heels of numerous executive changes at the highest levels at the company in recent weeks comes word that BMG is preparing to lay off hundreds of employees as part of a cost-cutting initiative ordered by parent Bertelsmann.

After declaring in 2000 that his company would be the #1 music group in the world, Bertelsmann CEO Thomas Middelhoff’s grandiose prediction has failed to materialize, and the German giant’s music operations have been in a downward spiral for the past 15 months.

Industry perception is that the conglomerate—which less than three years ago experienced its highest music marketshare ever—has made one wrong move after another.

Given such questionable and controversial high-profile moves such as trying to merge with EMI, getting in bed with Napster, firing Strauss Zelnick, Michael Dornemann and other top employees, potentially botching negotiations with Clive Davis and Clive Calder, hiring execs with virtually no music experience and losing NSYNC—to name just a few—wonderers are now wondering if Bertie is indeed preparing to sell off its music assets. If this is the Germans’ plan, the problem is obvious: Who is the potential buyer?

The Wall Street Journal reports today (7/3) that Bertelsmann has applied intense pressure on the music group to improve profitability. BMG insiders have previously said the company could post losses of close to $150 million in the year that ended Saturday (6/30). It is believed to be the first year in its history that the company will post such losses (hitsdailydouble.com, 6/21).

Senior executives are scheduled to meet in Madrid late next week, and cost-cutting plans are expected to be on the agenda, the Journal said, adding that a spokesman for BMG said the company's executive committee will focus on "repertoire development, efficiency and stepping up our investment in music."

The expected losses reflect a downturn in such key markets as the U.S. and Germany, large expenditures on Internet ventures and managerial changes at Arista and other labels.

Middelhoff is now pressuring BMG to improve its financial performance after publicly complaining about BMG's relatively low profitability.

Differences over how to reduce expenses played a role in BMG's decision to replace its head of Europe late last week, insiders said. Last week, Richard Griffiths, President of BMG U.K. and Europe, was replaced by Thomas Stein, who was named President of BMG Europe, as was first reported here (hitsdailydouble.com, 6/29).

Griffiths’ exit followed the departure of Konrad Hilbers, BMG's Chief Administrative Officer, who was replaced by Michael Smellie, who was given the COO title.

The managerial shakeups came after much speculation that BMG could lose Calder’s Zomba/Jive distribution rights in the U.S., which would drop BMG to last place among the five majors.

Middelhoff has brought up the possibility that the German media giant might sell off some of its non-core businesses, before it eventually goes public. Following these statements, speculation abounds that the loss-making music group may very well be considered one of these non-core ventures.

Since the departures of Dornemann and Zelnick late last year, the company has gone through several top-level changes, including the death of Rudi Gassner and the subsequent appointments of Rolf Schmidt-Holtz as BMG CEO and Smellie.

BMG employs more than 5,000 people worldwide and it is unclear how many will lose their jobs in the restructure.