Quandry of Europe's media shown in Middelhoff ouster

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They said he might be a new Rupert Murdoch, but Thomas Middelhoff turned out to be the next Jean-Marie Messier. If anything, the ousting of Middelhof, the chairman-CEO of Bertelsmann, the world's No. 4 media empire (bigger than Murdoch's News Corp.), is even more of a surprise than was that of Messier, the imperious former head of Vivendi-Universal. Only a month previously, Middelhoff's contract had been extended to 2005.

Therein lies a clue: "He had his contract extended." Middelhoff did not build Bertelsmann as Murdoch did News Corp., or Sumner Redstone did Viacom. He was a hired hand. The power in this notoriously secretive German giant lies with the reclusive Mohn family, owners for over 50 years.

In an interview last November with Advertising Age's sibling publication, Ad Age Global, Middelhoff bristled at suggestions of influence from the venerable 80-year-old Reinhard Mohn. But it was the Mohns who led the shareholders against their CEO.

Middelhoff joined Bertelsmann in 1986 and was given responsibility in 1994 for online and multimedia strategy-long before it became apparent how crucial such a role would become. His coup was to invest in the startup of America Online in Europe, a deal Bertelsmann is now cashing out of at great profit. Three years ago, he became chairman-CEO, responsible for a company that includes Random House publishing, BMG music publishing, RTL (Europe's largest TV and radio concern) and Gruner & Jahr, the giant magazine publisher.

Middelhoff is perhaps best known in the U.S. for a failed music-industry initiative that eventually led to his fatally flawed purchase of Napster, the online music-swapping service that he had hoped to legitimize.

His greater challenge, however, was to take closely held Bertelsmann partially public by 2004. It was rumored the Mohns were unhappy with Middelhoff's strategy, and his astonishing near $1 billion write-off on Bertelsmann's Internet activities did not help his standing. Pre-tax profits have been boosted by income from the sale of the AOL stake, but RTL and Gruner & Jahr did not escape the global decimation of ad revenues. All this was compounded by big problems in the direct-to-consumer music and book-club businesses that were so long Bertelsmann's mainstays.

Where Middelhoff's story is similar to Messier's at Vivendi is that aggrandizement, both personal and corporate, proved a final straw for shareholders already smarting at having lost so much money on misguided investments. The Middelhoff story also reflects the general malaise in which many of Europe's leading media companies find themselves, stuck between the rock of glo- balization and the hard place of a history of state and familial self-interests.

Middelhoff's fall in Germany does not have the huge political significance Messier's did in France. It's more a classic tale of traditionalists vs. modernizers. In the Bertelsmann case, the traditionalists have won. But for how long? If Bertelsmann wants to play in the A-League, it will need the funds that will come from a public stock offering. Middelhoff may yet be vindicated.

Stefano Hatfield is editorial director of Ad Age Global and Creativity.

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