Interview with Bertelsmann CEO Hartmut Ostrowski 'The Internet Is a Means, Not an End'

Hartmut Ostrowski, CEO of Bertelsmann, Europe's biggest media company, talks with SPIEGEL about the role of traditional media in the Internet age and the company's controversial expansion as a service provider.

SPIEGEL: Mr. Ostrowski, you are often described as a down-to-earth Westphalian who doesn't feel at home in the glittery world of media and show business. Does that bother you?

Hartmut Ostrowski: That's what people say who don't know me. I travel a lot -- throughout the US and China, to Barcelona and London. But on the weekends I'm glad to be back in East Westphalia again. It's the home of hard-nosed businessmen ... and thrifty people, the Swabians who were on their way to Scotland and ended up in the district of Lippe! (laughs)

SPIEGEL: The company that you run also has a reputation for being down-to-earth, some people these days would even say provincial. Is that unfair?

Ostrowski: Bertelsmann is a company that is privately owned -- and has left behind all other media companies in Europe. We may not be as large as some US companies that can generate capital on the stock exchange. But we're not striving to become the world's largest media company.

SPIEGEL: At one point in time, you were the largest.

Ostrowski: Yes, but that was basically by chance. It came about through a number of acquisitions, and then the others caught up through mergers. We want to be number one, two or three in the markets that are relevant for us.

SPIEGEL: That doesn't sound very sexy. Or how do you explain that Bertelsmann's reputation as an attractive employer has suffered?

Ostrowski: It's true that we have slipped slightly in the rankings. Perhaps we haven't really conveyed what a wonderful organization Bertelsmann is. There is no other German company, for instance, where young people can assume so much responsibility so quickly. At the age of 32, I was already managing 3,000 employees.

SPIEGEL: Perhaps it also has something to do with the fact that the founding family has expanded its influence over the company?

Ostrowski: The Mohn family has always had a large influence on the company, even if people sometimes paint a different picture. Reinhard Mohn was and continues to be very active in the company. And that's a good thing. We are a joint-stock company; the family doesn't get involved in the operational side of the business, but strategic decisions are made by the owners and the supervisory board. The owners are perfectly entitled to have a say in these matters.

SPIEGEL: The family decided in 2006 to buy back the outstanding Bertelsmann stock for €4.5 billion ($7 billion) to avoid an IPO, which would have reduced their influence. But that limits your room to maneuver financially.

Ostrowski: The sign of a good businessman is that he only spends money after he has earned it, not beforehand.

SPIEGEL: But this doesn’t allow you to pull off larger acquisitions.

Ostrowski: Of course not, but that's really not so bad. We can purchase medium-sized companies; that also fits much better with Bertelsmann. For instance, we made RTL into the largest television company in Europe and transformed Arvato from a small printing firm into the world's largest provider of media services. I can't see anything wrong with that. This concept is rooted in the company, and I don't know anyone at Bertelsmann who doesn't like it.

SPIEGEL: Your turnover has dropped slightly. You can't be happy about that.

Ostrowski: We are very satisfied with the operative results. It's just that we unfortunately have to correct a major investment from the previous years…

SPIEGEL: … by selling book clubs in the US that your company bought for €300 million three years ago.

Ostrowski: Something like that always hurts. Of course it's annoying when things don't work out but, all in all, we've done a great job in far more other areas.

SPIEGEL: Apparently, you intend to drop out of the music market and sell off your stake in Sony BMG. Was Bertelsmann too patient with this business?

Ostrowski: No, we recognized the problems back in 2002. We founded the Sony BMG joint venture in 2004 and, at some point in time, we'll give some thought as to what we'll do with our 50 percent.

SPIEGEL: At some point in time? Concrete negotiations are already underway.

Ostrowski: In a major corporation like this, there are always negotiations going on in a backroom somewhere. And, at some point in time, we will announce what we have decided on this issue. But I can't say if this will take two or eight weeks or even longer.

SPIEGEL: How do intend to attain your ambitious turnover objective, an increase from €18 billion to €30 billion by 2015, if you sell off large sales generating units?

Ostrowski: Sales aren't everything. But we've established a long-term objective, a "stretch goal" …

SPIEGEL: … a term coined by business legend Jack Welch: setting ambitious goals without knowing beforehand how they can be achieved.

Ostrowski: I'm not Jack Welch -- I'm Hartmut Ostrowski. In a company like Bertelsmann, all the opportunities lie in the power of the organization. You have to build on your business talents. How can we generate growth? The answer is as simple today as it was in the past: It all boils down to bringing content to customers. In the old days, there were a limited number of channels -- today there are hundreds of stations and many more magazines and newspapers. And the Internet, mobile phones and much more.

'Bertelsmann Will Always Be a Media Company'

SPIEGEL: For a while, the Internet played a key role in the Bertelsmann strategy. Would it be wrong to say that this has changed drastically?

Ostrowski: We see the Internet as a means and not an end, a medium that we can use to transmit our content and our brands. That's the Bertelsmann way.

SPIEGEL: You've just dropped your social network portal Bloomstreet. Is Bertelsmann simply incapable of making things work on the Internet?

Ostrowski: I issued a slogan: "Try a lot of things. And if you fail, do it as cheaply as possible." There is no other way to attain success. Everyone who has ever launched something on the Internet has said: "This is the best idea ever." But only 2 percent have succeeded. Admittedly, they made it big, but the rest didn't do so well. This might include two or three things from Bertelsmann.

SPIEGEL: Aren't you hoping to land the next Google?

Ostrowski: You can always hope, but I think the likelihood of that happening is basically zilch.

SPIEGEL: When you assumed your current position, you gave a speech to your managers about lions and lambs. Why the aggressive tone?

Ostrowski: I didn't find it aggressive, just open and honest. In a large organization like this, there are also a number of smaller units that don't develop so well, and a remark like this makes it clear to them that they have to take action. This is merely a call to roll up our sleeves and work.

SPIEGEL: No matter how hard a lamb may try, it will never become a lion. Does that mean it will have to be slaughtered?

Ostrowski: That's just an image. I wanted to focus on the right priorities.

SPIEGEL: One of your 'lambs' is the traditional core business with German book clubs. What will happen there?

Ostrowski: The book clubs have lost market share, and we're contemplating what to do next.

SPIEGEL: Is a sell-off possible?

Ostrowski: That is an option.

SPIEGEL: And if no buyer can be found, will the book clubs be closed, as they were in China?

Ostrowski: That is not on the table. But a businessman has to consider everything; there are no taboos.

SPIEGEL: Your subsidiary Grunter + Jahr has a high profitability ratio but is weak in the growth department. Are you nevertheless considering all options there?

Ostrowski: There have always been rumors that Gruner + Jahr will be sold off. I have always denied them, and I'll do it again here. It is simply not an issue. We are very happy with Gruner + Jahr, especially with the quality of the content. The question is how we can transfer this business to the new media world. Gruner + Jahr is on the right track, but we have a good deal of hard work ahead of us.

SPIEGEL: But the largest growth comes from areas beyond the realm of the media. Where exactly?

Ostrowski: Education is a mega-trend in our modern society. We want to do more in the area of further education. We have launched a project for online education and are working in the Anglo-American world with providers who offer vocational training, for example, for nurses or accountants.

SPIEGEL: Private schools are becoming more common in Germany. Is that a promising business area for Bertelsmann?

Ostrowski: I would rule that out for Germany. The political environment is currently too complex. In other countries, however, there are very successful private educational institutions that have led to improvements among public sector providers.

SPIEGEL: Don't the services that you offer through Arvato inevitably lead to political conflicts? Your administrative project in Würzburg was criticized by the opposition.

Ostrowski: We live in a free country, where everyone can say what they think. At the end of the day, the most important thing is that I have enhanced customer satisfaction. There is no doubt that the public sector requires a certain amount of reform.

SPIEGEL: Such ventures are a total departure from traditional media. Is Bertelsmann becoming a service company that makes money with every imaginable kind of service?

Ostrowski: Bertelsmann will definitely not clean buildings or provide security guards or manage prisons. We have precisely defined what fits with the Arvato services that we have provided to date. These may be small niches, but they are larger than traditional media. Nevertheless, Bertelsmann has always been a media company, and it will always remain a media company in the future. We will prove everyone wrong who says that Bertelsmann is becoming a service company.

SPIEGEL: Thank you for this interview, Mr. Ostrowski.

Interview conducted by Mathias Müller von Blumencron, Isabell Hülsen and Armin Mahler

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