Bertelsmann aided by RTL, committed to music

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COLOGNE, Germany -- Pan-European broadcaster RTL Group rescued first-half results at German parent Bertelsmann AG, with strong growth in the German and French TV markets compensating for stagnant or negative developments in most of Bertelsmann's other businesses.

Bertelsmann top brass in a conference call Tuesday also reaffirmed their commitment to the music business and said that music arm BMG and partner Sony Music are considering an expansion back into the music-publishing business.

Bertelsmann on Tuesday reported a 2% drop in revenue for the first half to €9 billion ($12 billion). The year-ago figures included BMG Music Publishing, which Bertelsmann sold in December to Vivendi's Universal Music Group for $2 billion.

Adjusted for the loss of its music-publishing business and other portfolio changes, Bertelsmann's revenue rose 1.3%.

RTL continues to be Bertelsmann's motor, with €2.9 billion ($3.9 billion) in revenue and an operating profit of €510 million ($693 million) in the first half. This was despite a $168 million goodwill write-off on RTL's British TV assets -- Channel Five and its digital spinoffs.

The music business is another story. Last week Bertelsmann settled what it said will be the last lawsuit connected to its 2002 bailout of file-sharing company Napster. Bertelsmann said it has paid out €229 million ($311 million) in claims relating to Napster lawsuits so far and expects, by year's end, to have shelled out €393 million ($534 million).

More troubling for Bertelsmann's music division BMG is the drop-off in its traditional CD business. Bertelsmann CEO Gunter Thielen said Tuesday that the company "like all of our competitors" was taken by surprise by the 20% drop in traditional music sales worldwide in the first half.

The division booked revenue of €600 million ($815 million) in the first half, down from €900 million, and swung to an operating loss of €3 million ($4.1 million) from a €2 million profit compared with the same period last year.

"We see good developments with the digital side of the music business," Thielen said. "And while it will take a while for digital sales to compensate for the decline in CD sales, we believe in music. It remains a core part of Bertelsmann's business."

Bertelsmann has resubmitted its planned merger between BMG and Sony Music to the European Commission and expects a decision in October. Thielen said he was confident the merger would go through.

Thielen also confirmed that BMG is looking to get back into the music-publishing business. The sale of the profitable BMG Music Publishing was driven by Bertelsmann's need for cash to finance a buyback of its own shares from Belgian investment firm Groupe Bruxelles Lambert. Thielen said BMG and Sony Music were working on a strategy to return to the music-publishing business.

The weak music market also has taken its toll on Bertelsmann's Direct Group, the division responsible for the company's music and book clubs. Direct Group had a €35 million ($47.5 million) operating loss in the first half as revenue shrunk slightly to €1.2 billion ($1.6 billion).

Bertelsmann CFO Thomas Rabe put much of the decline down to the weak U.S. dollar (the bulk of Direct Group's revenue comes from North America) and the fact that book and music clubs do the majority of their business in the second half.

Bertelsmann on Monday announced a major restructuring of Direct Group. The company's North American business will be folded into U.S.-based publisher Random House, leaving only the European/Asian operations to continue under the Direct Group label.

Fernando Carro will replace Direct Group CEO Ewald Walgenbach, who is resigning from Bertelsmann at year's end to join private investment group BC Partners.

Stuart Goldfarb will stay on as head of Direct Group's North American operations, renamed Bertelsmann Direct North America, reporting to Random House Chairman and CEO Peter Olson.
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