Can a New Manager Pull Bertelsmann Together?

Independent unit chiefs make it tough to cut costs

His wife was due to give birth any day, but Ewald Walgenbach, director of corporate development at Bertelsmann, found himself near Munich, arguing with executives at Kirch Group over an uneasy partnership in German pay TV. In the middle of a heated exchange, Walgenbach got news that his wife was in labor. Rushing back to Gütersloh, home to Bertelsmann's headquarters, he arrived at the delivery room just minutes after his second son came into the world.

That was 1994, the year Walgenbach joined Bertelsmann. The German company still demands that same degree of devotion from its top execs. Long hours are de rigueur at the media behemoth, owner of BMG Music, broadcaster RTL Group, and publisher Random House. Yet Bertelsmann also remains true to its roots as a 19th century Bible printer: Fathers are supposed to stand by their families when it counts.

For Walgenbach, 43, the balancing act will only get tougher. On Feb. 6, he was named chief operating officer--Bertelsmann's first ever. On paper, his brief is simple: cut costs, boost profitability, and prepare the company for a possible initial public offering in 2005. But in practice, it's a monumental task.

While Bertelsmann reported profit of $844 million on sales of $17.4 billion in its last fiscal year, a closer look reveals big problems at the operating level. Ads are down sharply, which is battering the TV and magazine units. The music division is struggling to rein in costs and return to profit. Strip out the $3 billion from sales of assets--mainly Bertelsmann's stake in AOL Europe--and the bottom line last year was negative. To get back in the black, Walgenbach must cast a ruthless eye on poorly performing units such as the book and music clubs. What can't be fixed will be sold or closed, say insiders.

Walgenbach's appointment amounts to an admission by Bertelsmann's overburdened CEO, Thomas Middelhoff, that he needs help to make a turnaround happen. The newly created post of COO is touchy, though. Bertelsmann unit chiefs are used to doing as they please, a system that promotes entrepreneurship but makes it tough to control costs and sometimes leads to an embarrassing lack of cooperation. One notorious example: RTL Group staged a nationwide search for talented young singers. The winners were No Angels, a pop quintet whose debut album topped the German charts last year. Great--except that Universal Music Group, not BMG, put out the record.

Insiders joke that Walgenbach is in charge of "merging" Bertelsmann into one company. To get the separate fiefdoms to work together, this PhD in plant genetics will have to demonstrate his mastery of company culture. "If there is someone who can deal with this situation, it's him," says Antonella Mei-Pochtler, a senior vice-president at Boston Consulting Group in Munich who has known Walgenbach since the late 1980s, when he worked at BCG. One clue to how well he is doing will come during the upcoming 25th anniversary of Elvis Presley's death: Since BMG owns the Presley music catalog, it's a golden opportunity for Bertelsmann's book, magazine, TV, and recording units to coordinate a special media blitz.

It helps that Walgenbach faced similar challenges in a prior incarnation as COO of Bertelsmann's most profitable unit, Luxembourg's RTL Group. Former co-workers say he is confrontational when he needs to be, yet adept at finding face-saving solutions to turf battles. Even former rivals praise him. "I can only say good things about him," says Gottfried Zmeck, former chief of Kirch's digital pay-TV operation.

One issue is where Walgenbach will find time for his new duties. His workday starts at 8 a.m. and often ends at around 11 p.m., according to sources at the company. He still manages to run 25 miles a week, occasionally take a spin on his bicycle, and, of course, spend time with his two sons, now 7 and 10. But the Bertelsmann family may get most of his attention for now.

By Jack Ewing in Gütersloh

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