Bertelsmann's New Music Man - Company Operations

Industry Standard, The, Jan 15, 2001 by Michael Learmonth

By naming Rolf Schmidt-Holtz president and CEO of its music division, Bertelsmann is putting its crown jewels -- Christina Aguilera, Britney Spears and the Backstreet Boys -- in the hands of a recording industry neophyte. Schmidt-Holtz has spent his career as a corporate dealmaker whose most recent assignment has been to develop an overarching content strategy to stretch across all the corporation's businesses.

But recording industry experience may not be relevant in the new world of digital distribution, where analysts expect music consumption to increase, profit margins to decrease and the full-length CD to fade away quietly.

Over the next few months, Schmidt-Holtz will likely oversee the release of the label's top singles to Napster, where they will be copied to millions of hard drives in exchange for a few pennies -- a cut of whatever subscription fee Bertelsmann and Napster decide to charge.

Bertelsmann broke with the recording industry in November when it lent Napster $50 million and agreed to drop BMG's suit against the file-sharing service once it develops a business model that compensates copyright holders. Bertelsmann has been collaborating with Napster to develop the new model.

Schmidt-Holtz's experience in mergers and acquisitions should come in handy when it comes time for BMG to integrate EMI Group, making the combined entity the biggest record label in the world. Depending on European regulators, that merger is expected to be completed -- or abandoned -- by the end of this month. Schmidt-Holtz will then have to convince powerful label heads within the merged company that the future has nothing to do with the prerecorded CD, or even the record store.

Schmidt-Holtz has experience integrating large media companies. Last year he oversaw the merger of Bertelsmann's television assets with the U.K.'s Pearson Television, creating one of the largest free TV networks in Europe.

Bertelsmann CEO Thomas Middelhoff calls Schmidt-Holtz his "content man" and says that he will continue to oversee Bertelsmann's content strategy. This could mean intellectual property deals with AOL-Time Warner and Vivendi Universal for distribution over cable, broadband and set-top boxes.

"The music business is undergoing radical upheavals," said Schmidt-Holtz when his appointment was announced. "Reshaping it is one of the most interesting entrepreneurial challenges imaginable."