The move was a surprise and marks another setback for the German media giant's Internet efforts.
Schmidt played a leading, and often controversial, role in Bertelsmann's expansion into online music. He was a central figure in striking a deal with Napster, giving Bertelsmann an option to take a controlling stake in the music-swapping service. Schmidt also led the company's acquisition of Web retailer CDNow as well as Bertelsmann's $30 million purchase of online music locker Myplay.com in May.
The operations of the Bertelsmann eCommerce Group (BeCG) will be controlled by Bertelsmann's DirectGroup. BeCG was a division of the DirectGroup run by Schmidt to develop Bertelsmann's online distribution businesses, which include its Barnes&Noble.com investment, its record club, BOL.com, CDNow and Myplay.
Sources close to the company say Schmidt was forced out and that Bertelsmann needed someone with more operational experience to run its Internet businesses. Schmidt was considered a maverick in the company, clashing with executives in Bertelsmann's recording division, BMG Entertainment. Most notably, Schmidt wrangled with BMG's former CEO, Strauss Zelnick, over the company's Napster relationship.
Other executives in the recording industry viewed Schmidt and Bertelsmann CEO Thomas Middelhoff as being unrealistic in their desire for labels to license their music to Napster. Record executives have criticized Bertelsmann for falling short of its assurances to develop technology on Napster that prevents illegal distribution.
Schmidt, a former journalist and former head of AOL Europe, was tapped by Middelhoff to stir things up. Schmidt spearheaded Middelhoff's effort to bring digital distribution to Bertelsmann's many content businesses, including BMG and book publisher Random House.
"We're in a way the scouts, with the risk of making mistakes, when we move and transition... into exploring new business models," Schmidt said in a July interview. "It's an entrepreneurial way of operating in a large media conglomerate."
But Bertelsmann's financial reality allowed little room for thinking big without addressing ongoing problems. Revenue for BMG has slipped 7.6 percent during the past year, and the division posted a $4.48 million loss before interest, taxes, depreciation and amortization. Meanwhile, Bertelsmann has been affected by the advertising slump that has plagued other media companies.
BeMusic, Bertelsmann's online music company, which Schmidt also headed, will be run by Bertelsmann executive Stuart Goldfarb. BeMusic will launch its online and offline music distribution services in 2002.
"Andreas Schmidt has expanded the position of Bertelsmann in the international e-commerce business with his creativity and commitment," Middelhoff said in a statement. "And for that we are grateful."