Rolf Schmidt-Holtz, 52, fills the position left vacant by BMG veteran Rudi Glassner, who died of a heart attack Dec. 23, just before he was to take over the top executive post.
Schmidt-Holtz--a board member at Bertelsmann, which owns BMG, and a former TV and magazine journalist--faces tough hurdles as the music company grapples with a recent alliance with Napster, the popular but controversial online music-swapping service.
Also on the horizon is a proposed merger with EMI Recorded Music, a deal that could encounter regulatory scrutiny but, if successful, would vault BMG past Vivendi-Universal's Universal Music Group as the largest music seller in the world.
"The music business is undergoing radical upheavals," Schmidt-Hotlz said in a statement. "Reshaping it is one of the most interesting entrepreneurial challenges imaginable."
The announcement punctuates a management overhaul at BMG, the record company behind popular artists such as Whitney Houston and 'N Sync. Former BMG chief executive Strauss Zelnick resigned in November after Bertelsmann announced a joint venture with Napster.
BMG, a $4.7 billion music and entertainment giant, is scratching out a position in the online music world, a turnaround from the previous cold shoulder the industry gave to Web-based music models.
Recent research from PricewaterhouseCoopers shows that sales of recorded music are expected to reach $42.8 billion by 2004. The study concluded that in the same year, 5 percent of the music sold in the United States will be in electronic format rather than on cassette or CD.
Napster, the free song-swapping service with some 20 million users, is a risky partner for BMG as it moves toward a more Internet-focused operation. The popular service comes with heavy baggage as it remains embroiled in copyright battles with artists and record labels. A court-ordered shutdown of the service has been put on hold, pending an appeal.
The challenge for Schmidt-Holtz will be to work with Napster to create a legitimate service that produces revenue. Getting other record labels to warm up to Napster after the ugly legal battles, however, could also prove to be a major hurdle for BMG.
"Napster must prove to the recording industry that it's going to make it money," said Mark Mooradian, an analyst at Jupiter Media Metrix. "It's going to take some labor intensive negotiations to get the record labels to accept Napster. Priority number one for the new chief executive is to extend an olive branch to the record labels."
Schmidt-Holtz is also expected to take over merger negotiations with EMI Recorded Music, one of the Big Five music companies.
EMI had been in merger talks with Time Warner, but that deal was scuttled over antitrust concerns.