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Bertelsmann May Shed Napster, Book Site

Media: The German group is seeking to scale back on money-losing online ventures after CEO's ouster, sources say.

September 02, 2002|MERISSA MARR | REUTERS

LONDON — German media group Bertelsmann is looking to sell or shut its book business and pull the plug on music service Napster in a clampdown on loss-making ventures, sources close to the company said Sunday.

Bertelsmann has held talks with online companies including Seattle-based retailer Inc. about as it seeks to scale back online operations after the ouster of Chief Executive Thomas Middelhoff, the sources said.

Privately owned Bertelsmann's new CEO, Gunter Thielen, has been reviewing the sprawling online businesses that were so heavily championed by Middelhoff, in a bid to concentrate on profitable operations.

Bertelsmann's owners installed Thielen last month as they sought to steer the group on a more conservative path after Middelhoff's aggressive expansion aimed at propelling the group into the ranks of global giants such as AOL Time Warner Inc.

Sources familiar with the situation told Reuters in July that Napster could be among the first casualties and's future was also hanging in the balance. Sources said on Sunday that Bertelsmann was closing in on a decision on their future.

"Bertelsmann is not happy with, and I would expect some kind of decision on its future soon," one source said. "Napster's future is still also extremely uncertain."

Bertelsmann's DirectGroup division, which houses the e-commerce businesses, confirmed it was considering strategic options of non-core operations but declined to comment specifically on or Napster.

DirectGroup stomached some $125 million in Internet start-up losses in the second half of last year. As losses continued, Thielen replaced the head of the division, Klaus Eierhoff, with Bertelsmann's former Chief Operating Officer Ewald Walgenbach.

Other operations under Walgenbach's spotlight include online bookseller Barnes& The future of Bertelsmann's music operation BeMusic also has come into question.

It is not the first time has come under review. Last year Bertelsmann closed a number of its loss-making operations, but the online book retailer still has struggled to make a mark.

The writing also has been on the wall for Napster since Middelhoff's sudden departure, sources said. The former CEO had been one of the few supporters within Bertelsmann of the U.S. Web service that once had 60 million followers.

Middelhoff had wanted to relaunch Napster as a legitimate online music subscription service and agreed to buy its assets out of bankruptcy. However, the service has been embroiled in a legal battle with the major music groups.

Sources close to the firm said the timing of any shut-off of funding to Napster would depend in part on U.S. judicial developments.

Elsewhere in the Bertelsmann empire, the group also is looking to sell its publishing arm BertelsmannSpringer and is in talks with potential buyers, sources familiar with the situation say.

Bertelsmann is expected to focus instead on core assets including television, book publishing and music. The group owns pan-European broadcaster RTL Group and the world's leading book publisher, Random House.

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