Bertelsmann’s Gunter Thielen

April 2007

By Anna Carugati

It’s one of the largest
media companies in the world, but it’s not based in New York or Los Angeles or
Tokyo or any other major metropolitan area. With headquarters in suburban Gütersloh,
Germany, Bertelsmann is a global force in television, music and publishing.

Gunter Thielen has been
with Bertelsmann for more than 25 years and has been the chairman and CEO since
2002. He has remained loyal to the company whose history and growth have been
closely entwined with Germany’s, yet at the same time has very successfully
expanded beyond its borders.

Founded in 1835 by Carl
Bertelsmann as C Bertelsmann Verlag, the company began as a publishing concern
with its own book-printing plant. The first bestseller was a compilation of
songs and hymns. Carl passed the business on to his son Heinrich, and in 1881,
Johannes Mohn married Heinrich’s daughter, Friederike, and took over the
publishing business after his father-in-law’s death.

Bertelsmann has been
controlled by the Mohn family ever since. After World War II, Reinhard Mohn
took the reins. He was the fifth generation to lead the company, but he faced
serious challenges. Most of the facilities had been destroyed in the bombings,
Germany’s currency had been devalued and its economy was in shambles. And yet
Reinhard slowly but surely enlarged the publishing business, developed the
first book clubs, and then expanded into music and television.

Most important, he
established the values that still guide the company today, including
decentralized organization, leadership through partnerships and responsibility
toward society. These are values that Thielen has upheld as he has led the
company into the digital age.

Today, Bertelsmann’s main
businesses is the RTL Group, the leading broadcast group in Europe, with
ownership and stakes in stations that reach some 170 million viewers. These
include RTL Television, RTL II, Super RTL, VOX and n-tv in Germany; M6 in
France; Five in the U.K.; Antena 3 in Spain; and RTL Klub in Hungary. RTL’s
content group, FremantleMedia, boasts some of the most successful formats on
television today, including Idols
and a host of popular telenovelas, serialized dramas and game shows. Random
House is the world’s largest general-interest publisher, with 9,000 new
publications every year and a roster of authors that includes Dan Brown and
John Grisham. Gruner + Jahr is Europe’s largest magazine publisher, with
market-leading titles such as Stern,
Geo and Capital. BMG, the umbrella company for Sony BMG Music
Entertainment and BMG Music Publishing, boasts such artists as Beyoncé, the
Dixie Chicks and Bob Dylan, and has more than 200 music labels in more than 40
countries. Arvato is the leading international ­media-services
provider, with printing, data replication and service operations in 37
countries. And DirectGroup runs book, CD and DVD clubs, serving 35 million
members in 24 countries.

In contrast to the
previous chairman and CEO, Thomas Middelhoff, who exhibited a somewhat
flamboyant management style, Thielen is known as a pragmatist with a
down-to-earth approach. He believes that fostering strong managers who
cooperate with one another and create synergies is the secret to the company’s
success.

Because of the positive
results that Thielen has produced for the company, Bertelsmann waived its
mandatory retirement age of 60 for executive board members. Thielen, who is now
64, will remain in his position until January 1, 2008, when he will be succeeded
by Hartmut Ostrowski, currently the chairman of Arvato. In this exclusive interview,
Thielen talks about the company he has led with such dedication.

WS: What was
the state of Bertelsmann when you took over as CEO? And what is the state of
the com­pany today?

THIELEN: When
I took over the company in 2002, media markets were in bad shape. We faced
losses on the Internet. My main goal was to increase profitability of our
businesses since our core business was also weak. In order to achieve this
goal, I set up a strategy and various actions to decentralize the company.
Since then, our return on sales (ROS) has doubled and increased to almost 10
percent in late 2006. An external analysis of our current portfolio proves that
today, 75 percent of our businesses command leading positions in their markets.

WS: Are you
pleased with the company as it is today?

THIELEN: Indeed
I am. The financial results for 2006 are the best in the history of
Bertelsmann. Looking back we can proudly state that it was a record-breaking
year. All the teams contributed to that success. All our big profit centers
showed very good results. Nevertheless, this is not the time to stop growing.

WS: In America, the
business world is dominated by publicly traded companies, while in Europe there
are several major companies that are held by families. What kind of imprint has
the Mohn family had on Bertelsmann?

THIELEN: The Mohn
family is the founding family of Bertelsmann. Reinhard Mohn took over the
company after World War II, built it up and led it himself until 1981. When he
handed over the steering wheel, Bertelsmann had a turnover of €2.86 billion
[$3.8 billion]. But more important, he had established a corporate culture
whose values are still key today. This culture is based on partnership, profit
sharing, citizenship, creativity and, last but not least, entrepreneurship.
Forming a company based on those values made it possible for him to step aside
and hand over responsibility to a board led by other managers or better:
entrepreneurs. I think Bertelsmann’s really big asset is its management team
and all the employees. The combination of both has let us grow to become one of
the largest media companies in the world.

WS: Why was
the decision made to buy back the 25.1-percent stake from Groupe Bruxelles
Lambert last year?

THIELEN: In
2001, we traded our 25 percent in Bertelsmann for nearly 30 percent of the RTL
Group. This gave us the clear majority in Europe’s leading television, radio
and ­TV-production group. The deal made the RTL Group a full member of
Bertelsmann and one of our key assets today. And the buyback last year made
good business sense as well! We negotiated with Groupe Bruxelles Lambert and
made up our minds about going public or not. At the end of the day, the owners
and the board decided unanimously to buy the shares back in order to remain
independent. Why? Because our shareholders practice a moderate future- dividend
policy that is quite low compared to what we would have to pay if we became a
listed company. This lets us reinvest what we earned. Financing this €4.5 billion [$5.9 billion] transaction was a brilliant
team effort. €1.6 billion [$2.1 billion] came from
the sale of BMG Music Publishing, and the rest will be financed from our
business until the end of this year.

WS: So paying
back the debt will not stop the company from expansion or growth?

THIELEN: Right.
We’re using this year of restrained investment to prepare the company for a new
growth phase as of 2008. Nevertheless, we did not need to freeze budgets: in
2006, Bertelsmann invested about €1.2 billion [$1.6
billion]. And from 2008 onward, we have investment capabilities for
acquisitions of €1 billion [$1.3 billion] to €1.5 billion [$2 billion] every
year.

WS: All media
companies today face the challenge of moving from the world of “old media” into
the digital world of “new media.” At the helm of what is one of the largest
media companies in the world, how do you foster a climate of innovation and
flexibility in a company as big as Bertelsmann?

THIELEN: We are
number four, by the way. But size is not an end in itself. We want to maintain
and increase people’s interest in joining Bertelsmann. We can only manage to be
an outstanding, interesting company if we get the most creative artists and the
best entrepreneurs. This is what drives our business.

Looking at music, you know
that legal digital downloads have become a significant part of the music
business. Sony BMG managed to increase the portion of its nonphysical sales
[downloads of music on the Internet] to about 12 percent in total. ­Certainly
we still face a declining market overall, but the transformation of the music
industry into the digital world is more than under way.

Looking at TV, we face a
trend of fragmentation. Niche stations of the future will have very small
market shares, but highly dedicated viewers. We already launched several new
digital channels, for example, in Great Britain, in Germany, in France and in
other countries. So if you are interested in soaps or daily dramas, you can
watch them 24/7—whenever you like.

We are adding a lot of
Internet activities to our core companies. I could list 30 or 40 examples of
what we have set up for the online world. Just to name one, have a look at
Clipfish. This is our very successful interactive online video platform in
Germany, launched by RTL, that is comparable to YouTube, but featuring both
user-generated content and professional clips. As you can see, we innovate.
Saying this also means that we have to become faster at implementing
innovations. That’s why I’ve put innovation management at the top of our agenda
for this year.

WS: So the
Internet will play an im­portant role in Bertelsmann’s future?

THIELEN: Absolutely.
All our businesses realize the importance of digitalization—but that is
not news. We are even interested in starting Internet businesses that are not
directly linked to our divisions. We see this changing world as an opportunity,
not as a threat.

WS: While the
Internet is damaging the newspaper business, you have not seen it as an enemy
of many of your businesses—it’s more of a positive complement?

THIELEN: It
always depends on the business. For example, in the case of RTL Group, the
Internet opens up more opportunities to distribute its content. For the music
business you face tough market conditions, because of illegal downloads. In the
long term, however, the Internet will represent an opportunity for the music
business as well. For DirectGroup and its business, the Internet is definitely
an opportunity. As more and more customers use the web to shop, we can give
them the right platform and enable them to establish communities online.

As for newspapers, you are
right; the Internet business is a challenge for publishers. Gruner + Jahr, our
leading European magazine ­pub­lisher, proves that there are several ways to
extend your brand to the web. Creativity and hard work are key to new business
models.

WS: In a few
years Google has become the number one media company. What does that say about
the media business today?

THIELEN: Google
is a technology company. Their success is mostly based on new advertising
business models. Bertelsmann, on the other hand, is a creator, producer and
vendor of content. The development of Google is outstanding for sure, but if
you look at the markets they do business in, it is more an evolution than a
revolution. Technology drives the development of new offerings. Digitalization,
as I said earlier, and convergence, will remain the mega trends in technology.
But brilliant content will continue to be the core of good media, besides
user-generated content. So, what will our role and position be in the face of
such trends? To that question, I can only answer that no one has the magic
formula for competing in the digital media world. Because there isn’t one
solution, there are many. And we look at all of them.

WS: Let’s look
at the RTL Group for a moment. You have market-leading stations in the
countries where you operate. Are you looking at other areas of the world? If an
opportunity arose in Asia or in America, would that interest you?

THIELEN: Yes,
we are always looking for new opportunities in several parts of the world—this
is elementary for entrepreneurs. Never stop. But conditions have to be right;
market potential has to be interesting. Our goal in every acquisition is to
gain a leading position in the long run. In America that is not possible at the
moment. Eastern Europe is on our agenda. India is also a very interesting
market.

As for the TV business,
one very important area in television for us is the production of formats. You
probably know FremantleMedia has opportunities all over the world.

WS: Yes,
Fremantle­Media has some of the most successful formats. One of them is Idols.

THIELEN: They
do, but that’s just one of them. They have many more things in the pipeline.

WS: As you
know, many of the major media companies are looking at China, a very difficult
market. What’s your take on China?

THIELEN: Right,
China is interesting, but definitely a difficult market. We have been present
in China for more than ten years. We now have a Bertelsmann head office in
Beijing and altogether about 1,500 employees in the country. We gained
knowledge of the market, made contacts and partnerships in past years that some
of our competitors are looking at with great envy. As part of our corporate
culture we act locally—not as a German company wherever we go—but,
for example, as a French company in France. This applies to China to an
extremely high degree. You have to act with a flair for and knowledge of the
local culture. And we do have exciting partnerships. For example, by acquiring
a significant share of the Chinese publisher Boda/Rayli, our Gruner + Jahr
became one of the largest players in the magazine market in China, publishing
more than 11 magazines. Actually, we are the country’s number-two magazine
publisher.

WS: What
lessons has the music industry on the whole learned from piracy and illegal
downloading, and can any of those lessons now be applied to the way you
approach the Internet in other businesses?

THIELEN: I
think the most important issue in this area is that lots of people using the
Internet feel that everything on the web is for free. Therefore they don’t feel
like they are doing anything wrong when they download music for free. But in
the end it’s stealing! We have to change this mindset. That is not only up to
Sony BMG or Bertelsmann or the music industry—it’s a huge challenge. I
guess we all agree that it is wrong to take a product and not pay for it.

On the other hand, I think
music companies have to change their business model. At the end of the day, it’s
very convenient to download music from the web. It will be the distribution
channel of the future—there is no doubt about it.

WS: Book
publishing is a very significant portion of Bertelsmann. How do you see the
book industry embracing new technologies, such as electronic tablets that can
store dozens of books and other printed materials?

THIELEN: For a
book publisher it doesn’t make much difference if the book is printed or sent
to an electronic device. Just like in the music industry, whether music is sold
on a CD or downloaded, it’s not a problem if the prices are decent. It’s the
same for the book publisher. For the printing business…it’s a different matter,
and we have to think about that. But honestly, we’ve heard discussions about
the demise of printed content for decades now. At the same time we see the book
market on a very high level worldwide. I believe people will always continue to
read printed books, even 20 years from now and more. Younger people, I am sure
as well, will use electronic devices more often and with greater
self-confidence.

WS: What do
think your legacy is at Bertelsmann? What will you be remembered for and what
are you passing on?

THIELEN: Tough
question. If I could make a wish, I would like to hear people saying about me
that Gunter Thielen took care of his folks. That he valued opinions, was a good
partner and the right entrepreneur for the company at the right time. That’s on
the wish front. First of all, I want to reach our business goals for ’07 to
position the company for a new growth phase as of next year.

WS: There are
some who criticize that Bertelsmann has not been aggressive enough because it
is family owned and because it is not based in a major metropolitan area like
London or Paris or New York. How do you respond to that criticism?

THIELEN: What
does it mean to be aggressive? What difference does it make to be aggressive?
We managed the most successful year ever in the history of Bertelsmann. Is
there a need to be aggressive? I think you have to be successful and to be
successful means that employees feel safe at the company, that we create good
shareholder value, and that we prepare for future challenges. We’re doing all
those things.

Do we miss
multibillion-dollar acquisitions? Do we need them? Boston Consulting Group
together with the executive board did an in-depth analysis of our business. We
concluded that Bertelsmann has good growing opportunities from the inside of
our business. Our clear and proven growth strategy doesn’t need to be more
aggressive nor based on gigantic acquisitions. But to be sure we’re watching
every opportunity carefully.

WS: Gerhard
Zeiler [the CEO of the RTL Group] has done a very good job heading the
television businesses.

THIELEN: Absolutely.
He’s doing an excellent job. He took over at RTL Group in 2003 and increased
the business significantly year by year. He’s one of the best TV executives in
the world.

WS: And he’s a
very nice guy on top of that. And what can you tell us about your successor,
Mr. Ostrowski?

THIELEN: He’s
also a very nice guy! On top of that, he has proven again and again that his
entrepreneurial drive and innovative thinking have placed him in the best
position to lead our company to growth and prosperity. He embodies our
management style of leadership through partnership with his employees.