Middelhoff, Thomas

▪ 2002

      Could signal success in publishing be translated into the music business as well? In 2001 Thomas Middelhoff, the dynamic chairman and CEO of Bertelsmann AG, the German global media giant, was betting that it would.

      Middelhoff was born in Düsseldorf, Ger., on May 11, 1953. He earned an MBA (Westphalian Wilhelm University of Münster) and studied marketing before joining his family's textile business in 1984. He took his first position with a Bertelsmann subsidiary in 1986 and moved up the corporate ranks quickly. Renowned for his high-tech savvy, Middelhoff met America Online (AOL) founder Steve Case in 1994 and was so impressed with the Internet service provider that he urged his company to invest millions in AOL and its European counterpart. The value of that investment soared, as did Middelhoff's standing with Bertelsmann. These and other successes propelled Middelhoff, then aged 45, into Bertelsmann's CEO position in 1998. Shortly thereafter, Bertelsmann sold its interests in AOL and AOL Europe for nearly $9 billion and turned to investing in other on-line technologies, specifically the Internet file-sharing company Napster, Inc.

      At the same time Middelhoff was making a name for himself, Bertelsmann was accelerating its global strategy to acquire publishing houses and other media assets throughout the world. Key subsidiaries included newspaper and magazine publisher Gruner + Jahr, American book publishers Bantam Doubleday Dell and Random House, science and business publisher BertelsmannSpringer, and BMG Entertainment (which owned more than 200 record labels in more than 50 countries, including Arista and RCA in the United States). In February 2001 the firm gained a controlling interest in the Luxembourg-based RTL Group, Europe's largest producer of radio, television, and movie content and operator of 18 radio and 24 TV stations across the continent. Still, American markets accounted for much of the company's international growth, and Bertelsmann chose New York City—where Middelhoff spent roughly half his time—as the seat of its book-publishing operations in 1999. In mid-2001 Bertelsmann enjoyed annual revenues of €16.5 billion (about $15 billion).

      As CEO, Middelhoff set out to shed unprofitable businesses (such as AOL and pay television), reinvigorate traditional ones (European book clubs), and, principally, make Bertelsmann a leading provider of content. Middelhoff's Napster gamble surprised many observers. Napster provided software that allowed individuals to swap electronic music files without paying for them, and the service spent much of 2000 mired in legal battles brought on by music companies. To the chagrin of Bertelsmann executives, however, Middelhoff came down in support of Napster, assuming that users would be willing to pay for the legal acquisition of music files over the Internet. In July Konrad Hilbers, a Bertelsmann executive, was named CEO of Napster. Middelhoff showed his commitment to the agreement by anteing up $50 million intended to help Napster comply with copyright laws. Early signs, however, suggested that Napster's customers might not be willing to pay the price of copyrights, and they turned to competing companies such as FastTrack, Gnutella, and Audiogalaxy. At year's end the chips were still out on Middelhoff's bet.

Sarah Forbes Orwig

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