Bertelsmann Ag Financial Analysis Report

Bertelsmann AG Financial Analysis Report

History

Bertelsmann AG was founded in July 1835 by Carl Bertelsmann as a print shop. Initially the company concentrated on Christian books and songs. In 1849 Carl Bertelsmann’s son Heinrich took over the publishing business, which employed 14, and extended the inventory of the publishing house to novels. At the time of his death in 1887, the staff had grown to 60.

Next to head the company was Johannes Mohn, son-in-law of Heinrich. The company’s growth slowed during this period and the focus was redirected to theological subjects. In 1910 he introduced paid vacation to the company. By 1921, when he turned control of the company over to his son Heinrich, the company had grown to 85 people.

Under the leadership of Heinrich Bertelsmann, the company experienced rapid growth and by 1939, the publishing house had grown to employ 400 people. New marketing channels were added as the readership became more mainstream in the late 1920’s. On the verge of World War II, the company moved from classical literature and fiction to include books with militaristic themes and eventually published books with nationalistic, racial and anti-Semitic content. The publisher insured its survival for most of the war by linking itself with the Nationalist Socialist ideology. Trouble started in 1944 when it was shut down by the German government as non-essential to the war effort and then crippled in March 1945 during an allied air raid on Gutersloh, in which only some of the printing machines survived.

After the war, the publisher was rebuilt by the fifth generation to lead Bertelsmann, Reinhart Hohn, whose influence continues to the present. He took the company from a medium-size printing company to a media conglomerate. In 1950 he established the Reader’s Circle, which bypassed the traditional marketing channels and allowed books to go directly to the reader. Within a year, it had 100,000 members and by 1954 membership had reached 1,000,000. The LP label Ariola Records was founded in 1958 which signaled the company’s entry into the music market. Bertelsmann entered the film industry with the purchase of Ufa Filmproduktionsgesellschaft in 1964. Mohn’s transition of the company culminated in 1971 with incorporation. He remained CEO and was the majority shareholder.

The 1980’s and 1990’s saw an emphasis on foreign markets, which had begun in 1962 with Spain. In the United States, Arista Records (1979), Bantam Books (1980), Doubleday (1986), RCA (1986) and Windham Hill Records (1992) joined the Bertelsmann family. In the 1990’s the company went digital with the establishment of AOL Europe and the network company mediaWays, Europe’s second largest network provider, and in 1999 launched BOL, an international media shop. In 1998 Thomas Middelhoff became CEO and acquired Random House and concentrated book publishing in the United States under this label.

The year 2000 saw the creation of the RTL Group, which was taken public. It was the result of a merger between CLT-UFA and the British company Pearson TV. In 2002 Bertelsmann acquired Zomba, the world’s largest independent music company. This move, along with the addition of superstars like the Backstreet Boys and Britney Spears to its stable, pushed the BMG division into third place worldwide in music publishing. In August 2004, a 50/50 merger was completed with Sony Music Entertainment to create Sony BMG Music Entertainment. Among the labels included are: Arista, Columbia Records, Epic, Jive, J Records, LaFace, RCA Records, RLG-Nashville, Sony Music Nashville, Sony Classical, BMG UK, BMG Japan, BMG Ricordi and Sony Music International.

Financial Condition of Company

Currently Bertelsmann is a non-public stock corporation. Its capital shareholders are Bertelsmann Stiftung (57.6%), Groupe Bruxelles Lambert (25.1%) and the Mohn family (17.3%). Bertelsmann Verwaltungsgesellschaft controls 75% of the voting rights, representing the Mohn family and Bertelsmann Stiftung. The remaining 25% of the voting rights are controlled by Groupe Bruxelles Lambert. The current CEO and CFO are Gunter Thielen and Siegfried Luther respectively, and the company employed over 76,000 people worldwide by the end of 2004. On March 17, 2005, Bertelsmann announced earnings of $1.28 billion on revenues of $21.17 billion.

The largest division within Bertelsmann is the RTG Group. It accounted for about 28% of total revenue in 2004, and is comprised of television (RTL II, SUPER RTL, VOX, n-tv, M6, Five, RTL 4, Yorin and RTL TV1), radio (Bel RTL, Yorin FM, RTL, RTL 2, Fun Radio, 104.6 RTL, and Radio Hamburg) and production (FremantleMedia, SPORTFIVE, teamWorx and UFA Film & TV Productions). These holdings