Bertelsmann is hardly a household name in the United States, but the family-owned German company, wich goes back to 1835, has a global mass media presence. Its greatest U.S. book presence is with the trade publisher Random House, which it acquired in 1998. BertelsmannSpringer is a significant scientific and professional publisher that accounts for 3.7 percent of the company's revenue.

The Bertelsmann of today is the post-World War II product of Reinhard Mohn. After three years in a prisoner-of-war camp in Kansas, Mohn, 25, returned home to the ruins of the publishing house that had been handed down through his mother's side -- the Bertelsmanns. His older brother had died in the war, leaving Reinhard the heir. His interests were not the content of what the company produced as much as running and building the company. He studied management theory and applied what he learned to create an infrastructure for a growing company with decentralized profit centers. Executives at subsidiaries were largely autonomous. The decentralized structure with performance-based compensation attracted entrepreneurial executives, who came to be called "Bertelsmen." This distinctive corporate culture was Mohn's creation.

HEADQUARTERS In Gütersloh,1835 and 2002

Mohn's first big post-war business triumph was Readers' Circle, a book club late renamed Der Club. Building on that experience, Mohn launched a book club in Spain and also went into the music business. In 1969 he bought into a Hamburg-based magazine chain, Gruner & Jahr, and later acquired control and bought U.S. titles. In the late 1970s Bertelsmann moved further into the United States by acquiring Bantam Books and Arista Records. In 1984 it went into German television, buying the RTL network, In 1986 the expansion focused on the United States again with Doubleday Books and RCA Records. By 1996 Bertelsmann owned 200 book companies, magazines and other operating units with 44,000 employees in 25 countries. These units generated almost $14.8 billion in 1996 revenue, about one-third of it from the United States. In 1998 Bertelsmann acquired the giant U.S. publisher Random House, which, combined with the Bantam Doubleday Dell units, made Bertelsmann the largest commercial U.S. book producer.

The Bertelsmann empire, with feet planted in a diverse range of media, was the precursor of the later giants like AOL Time Warner, Disney, News Corp., Viacom, and Viacom. Mohn was there first. There was, however, a major difference. Because the family owned the Bertelsmann, Mohn was not under pressure to distribute profits to shareholders. Profits were re-invested in the compan. Acquisition were largely self-financed. While johnny-come-lately media giants reeled from one financial crisis to another after financing their expansions with heavy borrowing, Bertelsmann entered the 21st century debt-free.

In the late 1990s, approaching his 80th birthday, Mohn was concerned about continuity. He shifted voting rights to a committee comprised mostly of executives, employees and family members. In 1998, Thomas Middelhoff, age 45, who had been withy the company 12 years and been groomed for the job, took over as chief executive officer. He had masterminded the Random House purchase. Building on its book club experience, Bertelsmann acquired 50 percent of Book-of-the-Month Club and Literary Guild in the United States. Middelhoff oversaw U.S. magazine purchases and investments in e-commerce. By 2002, Bertelsmann had partnerships that made it the Number One web music retailer and Number Two web bookseller. Middelhoff put money into Napster, the fading web music-for-free enabler that had been upended in the courts, with the goal of finding ways for Napster technology to be used to sell music.

MOHN From ashes MIDDEL- HOFF Chief exec

Without the debt of its media giant rivals, Bertelsmann was able to turn profits in the difficult year 2001. According to a comparison by Justin Fox at Fortune magazine, even though Bertelsmann was only fifth in revenues among media companies, none did better with after-tax earnings:

Bertelsmann Disney Viacom News Corp. Vivendi AOL Time Warner

$ 873 million -158 million -224 million $401 million -1.0 billion -4.9 billion

The future? Middelhoff has moved Bertelsmann away from one Reinhard Mohn principle -- autonomous operating units. He has encouraged executives to seek synergies within the corporate structure, which include book-printing and CD-pressing factories and television production studios.

200+ OPERATING UNITS 44,000 employees, 25 countries

Updated May 26, 2002

SA2 bibliography:

Justin Fox. "Thomas Middelhoff Wants Respect," Fortune (May 27, 2002), Pages. 144-152.