Why You Can Trust CNET Bertelsmann charging online
The German media giant is aggressively extending its reach onto the Net, highlighted by two high-profile deals announced this week.
Bertelsmann this week paid $200 million for a 50-50 joint venture with book retailer Barnes & Noble's online unit Barnesandnoble.com. Both companies will contribute another $100 million to the venture.
In addition, Bertelsmann and America Online teamed up to launch an online service in Australia. Three years ago, Bertelsmann and AOL formed a similar joint venture in Europe. Bertelsmann also holds a significant stake in AOL.
Online is a small part of Bertelsmann's business, but it is also the firm's fastest-growing area. Bertlesmann, which is the world's third-largest media giant behind Disney and Time Warner, is privately held, and traces its roots back to 1835. It faces stiff competition on the Net, but it has the financial, marketing, and distribution clout to be successful, analysts said.
"They're in the process of expanding on the Internet," said Jason Klein, an analyst at Blackford Securities. "To date they don't have a lot of experience online. But they do bring a lot of related experience."
The Barnesandnoble.com deal gives Bertelsmann a significant Internet presence in the United States, which generated nearly a third of the company's revenues last year. Bertlesmann expects the United States to account for more of its sales than any other geographic region next year.
Analysts don't expect the venture to unseat Amazon as the king of Internet retail any time soon, although the online bookseller's stock fell in the wake of this week's deal between Bertelsmann and Barnesandnoble.com.
On its own, Bertelsmann still intends to launch its BooksOnline service in several European countries next month.
Some Wall Street analysts were surprised by the Barnesandnoble.com deal, despite rumors that circulated for weeks. Bertelsmann executives recently said the company would attempt to wade into the U.S. Internet market alone after Barnesandnoble.com filed for an IPO.
"Bertelsmann in this space is something that the space is lacking," said Scott Appleby, an analyst with ABN AMRO. "Bertelsmann is truly the only vertically integrated bookselling machine out there."
Appleby said just being a brick-and-mortar bookseller is not the only avenue to profitability and Bertelsmann's three-and-a-half year partnership with AOL should provide plenty of Internet lessons from which to draw.
"This is not just a publisher coming to town here," Appleby said. "They know this space, they're committed to the Internet, and they understand the Internet. Whether or not they can execute is another thing."
With more than 300 properties, including Random House, Bantam Doubleday Dell, and BMG Entertainment, Bertelsmann has proven it has the know-how and experience to be successful. And with many analysts pointing to Europe--and especially Germany--as the next great boom area for Net use, Bertelsmann, headquartered in the northwest German city of Gütersloh, is poised to capitalize on the growth.
In addition to the partnership with AOL, Bertelsmann participates in a European joint venture with Net directory Lycos and its Tripod Web community. The company also owns 75 percent of Pixelpark, Germany's largest multimedia design firm, and is branching out into Internet telephony.
Meanwhile, Bertelsmann is working with several other publishers to develop a set of standards for electronic books. Microsoft joined the group today.