Bertelsmann sees net profits drop
But media giant happy with overall bottom line
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Revenues at the world's fifth-largest media conglom were dented by the weak U.S. dollar as well as the poor state of the global economy. But the group's operating profit -- or earnings before interest, tax and amortization -- was up 30% from last year to $246 million, primarily due to the shoring up of losses at direct-to-customer division Direct Group, the positive performance of its TV arm and main breadwinner RTL Group and belt-tightening across the company.
"Bertelsmann has further improved the results of its operating businesses in the first half of 2003," Bertelsmann chairman-CEO Gunter Thielen said. "This confirms our focus on strengthening core businesses and improving earnings potential. Based on the seasonal nature of many Bertelsmann businesses, we expect higher revenues and a higher operating profit for the second half of the year than during the first half. We are keeping our forecast of achieving an operating cash flow for the whole of 2003 that exceeds previous-year levels."
Company added that a greater number of releases in the music and book publishing divisions were lined up for the latter part of the year. Bertelsmann's second-half earnings also will get a $1.1 billion boost from the sale of its specialist-publishing group Bertelsmann Springer.
Profits last year saw a massive upsurge thanks to the sale of shares in AOL Europe, which accounted for most of Bertelsmann's $1.7 billion net earnings in the first half of 2002. This year the company listed $57 million as expenditures for the integration of Zomba music into BMG and restructuring of the music division.
Less invested
Investments for the first half of 2003 totaled $369 million compared with $2 billion last year, mainly relating to the acquisition of program rights for RTL. Last year's investment costs included the purchase of a further 22% in RTL for $1.5 billion.
RTL Group, which brought in $2.37 billion in revenue in the first six months of the year, including a 47% boost in net profits to $27 million, saw growth despite the overall industry trend. RTL attributed much of its success to RTL Television, Germany's leading web, which attained its best audience levels since 1997 with formats such as its local "Pop Idol" version, "Deutschland sucht den Superstar," and entertainment programs.
The success of RTL Group subsidiary FremantleMedia around the world with "Pop Idol," together with French web M6's satisfactory performance in France and Five's breakeven in the U.K., contributed to RTL's positive performance, company said. Rigorous cost-cutting across the group also played a part.
Bertelsmann's music and book publishing divisions felt the pangs of the economic slowdown and lower consumer demand, particularly in the U.S., company said. BMG, home to artists such as R. Kelly, Avril Lavigne and Justin Timberlake, saw its operating loss grow 160% to $126 million on revenue of $1.07 billion, which was down nearly 7%.
Talks extended
However, BMG and Warner Music reportedly have extended their exclusive negotiations over a 50:50 merger of their recording businesses.
The exclusive period ended at the end of August, prompting rumors that EMI would leap in to make a bid.
Although EMI's public stance is that it does not need a merger partner to prosper, the British company believes there are considerable savings to be obtained from a tie-up between any two of the three smaller music majors.
None of the players would comment on the merger.
Meanwhile, the weak dollar dampened revenues at publisher Random House, which saw its top line dip 26% to $806 million and operating profits sink 57% to $31 million. The revenue drop was partially offset by such major bestsellers as "The Da Vinci Code" by Dan Brown and "The King of Torts" by John Grisham, as well as by the audiobook for J.K. Rowling's fifth "Harry Potter" novel, company said.
Direct Group, however, was able cut its losses 85% to $18 million on revenue of $1.2 billion. Its slight decline in revenues was attributed to its exit from e-commerce activities and a reorientation to core book and music clubs.
(Debra Johnson in London contributed to this report.)
