JANUARY 19, 2007
Europe
By Jack Ewing
Bertelsmann's New Web-Friendly CEO
The German media conglomerate will soon have a new chief who fits the company profile—but his Internet savvy is expected to widen its reach
Hartmut Ostrowski was fit into a stereotype even before he was officially anointed chief executive-designate of German media company Bertelsmann on Jan. 19. Numerous stories in the German and foreign press pegged Ostrowski, 48, as the prototypical Bertelsmann lifer, sensible enough to keep a low profile at a company that values modesty and loyalty and adept at staying in good favor with family shareholders led by Liz Mohn.
There is certainly an element of truth to that description of Ostrowski, who most recently served as chief of Bertelsmann's profitable but unglamorous Arvato printing and services division. In his former position, Ostrowski "was known for being discrete and reserved," says a former Arvato employee. "That is valued around Bertelsmann."
But Ostrowski, the son of a plumber who has spent almost all his life in the area around Bertelsmann headquarters in the Westfalian burg of Gütersloh, could turn out to be a more aggressive chief executive than the cliché suggests.
Taking It to the Edge True, he won't be a flashy dealmaker in the mold of Thomas Middelhoff, who was ousted as Bertelsmann CEO in 2002. Like Middelhoff, though, Ostrowski could push Bertelsmann to better exploit the media possibilities of the Internet. "Don't underestimate him," says one person who works closely with Bertelsmann. "He has a lot of plans in his desk drawer."
Bertelsmann already has a respectable presence on the Internet, but critics say it could do more. RTL Group, Bertelsmann's TV division, is No. 1 in broadcast-related Web sites in Germany, according to Nielsen//NetRatings (NTRT). (RTL's holdings include the company that produces the Pop Idol casting shows.) But Bertelsmann's Internet stature is modest compared to rival News Corp. (NWS), which purchased social-networking site MySpace in 2005.
Meanwhile, as with all media companies, Bertelsmann's traditional business such as Random House books, Gruner + Jahr magazines, and BMG music (now part of Sony BMG Music Entertainment (SNE)) have suffered from the disruptive effects of the Internet, which drained away audiences and advertisers (see BusinessWeek.com, 9/6/06, "Bertelsmann's Slimmer Profile Generates Thinner Profits").
On a Budget Expect Ostrowski, who will officially succeed Gunter Thielen as Bertelsmann CEO on Jan. 1, 2008, to attack the online world more forcefully. Ostrowski won't make acquisitions on the scale of MySpace, preferring smaller assets with substance and solid cash flow, says one informed source.
Even if it were Ostrowski's style to make a big acquisition, Bertelsmann lacks the wherewithal. It is too busy paying back $11.6 billion in debt, largely the result of the buyback last year of 25% of its own shares from outside investor Groupe Bruxelles Lambert. Instead, Ostrowski will look for reasonably priced acquisitions in areas such as broadband access or mobile TV.
In his current job running Arvato, Ostrowski is no stranger to the digital world. For example, Arvato provides the platform that British music company EMI Music uses to sell tunes over the Internet. In a joint venture with Warner Bros. Home Entertainment (TWX), Arvato also operates a video and movie download service called In2Movies.
Stable of Clients In fact, Arvato has helped Bertelsmann keep growing even as the rest of the company struggled with crises in music and magazines. Continuing work begun by Thielen, who ran Arvato before becoming Bertelsmann's CEO, Ostrowski transformed what was once a printing company into an outsourcing powerhouse whose services often involve e-commerce.
Arvato runs customer-service centers for McDonald's (MCD) and Nokia (NOK). It also handles shipping for Microsoft's (MSFT) Xbox in Europe and distributes digital content such as ringtones for mobile-phone operators Vodafone Group (VOD) and T-Mobile International (DT).
Ostrowski inherits a company with solid, but not spectacular, profits. For the first nine months of 2006, Bertelsmann's operating profit rose 8.3% to $1.3 billion on sales of $17.6 billion. However, net income slipped 36% to $471 million, largely because of increased taxes and interest expenses. To deliver better growth than that, the reserved Ostrowski may have to behave more like a cocky Silicon Valley entrepreneur than a Bertelsmann lifer.
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