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What to Read Into Bertelsmann's Acquisition of Random House?

Media: Some worry about a U.S.-German culture clash, and that the very size of the firm's publishing holdings could threaten smaller houses and retailers. Defenders see no cause for alarm.


NEW YORK — Reinhard Mohn's journey to the heights of international publishing began humbly enough--in an American camp for German prisoners during World War II. While he was behind barbed wire, the Nazis shut down several divisions of his family's book business and jailed three officials. Later, Allied planes flattened what was left of the Bertelsmann company's physical plant in northern Germany.

Some might have thought the 110-year-old firm was kaput. But Mohn spent the war years watching and learning: He studied business administration in a Kansas POW camp and was impressed by America's reliance on entrepreneurs. He admired the nation's flourishing book clubs and couldn't help but contrast its free press with Germany's rigid dictatorship.

When he returned home in 1946 at age 25, the young executive used many of these insights to help rebuild his family's shattered business. And now, more than 50 years later, Bertelsmann sits astride the American book world. The company has created a juggernaut of literary and economic clout that sparks both awe and criticism, six months after its $1.4-billion purchase of Random House Inc., the crown jewel of U.S. publishing.

The stunning acquisition--which merged Random House with Bertelsmann's existing holdings, including Bantam, Doubleday and Dell--instantly created America's largest trade, or general-interest, publisher. At cocktail parties, Manhattan's literati buzzed that Germans, once known for burning books, now spend billions on them. And they relished the irony that Germany has boldly increased its stake in the American book world at a time when other media companies--such as Viacom, Time-Warner, Walt Disney and Rupert Murdoch's News Corp.--are bearish about their publishing ventures, some even seeking to sell them off.

"The idea that your publishing house could be swallowed up by an even larger one is disconcerting," said Cynthia Ozick, a novelist whose work is published by Knopf, a division of Random House. "But that's the trend in publishing, bigger and bigger, and I suppose it's a very good thing they [Bertelsmann] don't sell potatoes. They care about selling books, which they're entitled to do."

Bertelsmann's aggressive move continues a trend of German companies' forging into American markets, such as Daimler-Benz's purchase of Chrysler and Deutsche Bank's acquisition of Bankers Trust Corp. All of these deals rocked the financial world, but Bertelsmann has not bought just another big company. It owns a major piece of America's cultural patrimony, with contemporary authors ranging from Norman Mailer and Toni Morrison to John Grisham and Michael Crichton, along with classic works by international giants such as William Faulkner, Thomas Mann and Marcel Proust.

Depending on the estimate, Random House's 27 divisions generate from 13% to 36% of U.S. trade book sales. And now the world's third-largest media company is poised to get even bigger. Shortly after gobbling up Random House, the Bertelsmann conglomerate--which also includes BMG records, large foreign TV holdings, U.S. and European magazines, book clubs and other ventures--paid $200 million to become a 50% owner of, the bookselling giant's new Internet retailer.

The company has an $800-million stake in America Online and is working with the firm to develop European business. Meanwhile, Bertelsmann has invested in the Rocket eBook, a hand-held device for reading books and magazines in electronic form. As the growth in online book sales and related products explodes, the Germans will be in the vanguard here and abroad.

"All of this has dramatically changed the landscape of publishing," said John F. Baker, editorial director of the Publishers Weekly trade paper. "When you add it up, the Bertelsmann deal is a hefty bundle, even in an age of global merger and consolidation. They have an upbeat view of the U.S. market."

The German invasion, however, raises important concerns: Will foreign ownership of a company as large as Random House create cultural friction between German business and the U.S. book world? Does the dominance of huge publishers and booksellers, now linked on the Internet, spell doom for smaller publishers and sellers? And will the heft of one company allow it to decide which books will--or won't--be sold to American readers?

Thomas Middelhoff, Bertelsmann's newly appointed chief executive, brushes aside such negative scenarios. His company has traditionally given its subsidiaries great autonomy, he said, and at a time when more American publishers are formed every year, he believes diversity will thrive in the U.S. book business.

Besides, the 45-year-old CEO has more on his mind than just publishing. When visitors enter Bertelsmann's American headquarters, a gleaming black-and-green skyscraper in Times Square, it's a multimedia experience: Rock music throbs from a record store and a large wall of television screens plays music videos and blurbs for other in-house products.

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