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Strong Bertelsmann Earnings Affirm Ad Upswing
By ERIC PFANNER
Published: August 31, 2010
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CloseLinkedinDiggMixxMySpaceYahoo! BuzzPermalink PARIS — Evidence of a rebound in the media industry strengthened Tuesday as Bertelsmann of Germany reported strong financial results for the first half of 2010 and upgraded its outlook for the whole year.
Bertelsmann, the biggest media company in Europe, reported net income of €246 million, or $312 million, in the first half of the year, after a loss of €333 million a year earlier. Revenue rose 4 percent, to €7.4 billion, as advertising, hit hard during the recession, bounced back more rapidly than expected. The privately held company did not break out second-quarter results.
“The economy and especially the advertising markets are friendlier,” Hartmut Ostrowski, chief executive of Bertelsmann, said in a statement.
The news from Bertelsmann, which is based in Gütersloh, Germany, was the latest in a series of recent upbeat pronouncements from big media companies. Other international conglomerates, like Time Warner and News Corp., have also reported improved financial results. In Europe, the recovery has been led by German companies like Bertelsmann, as well as the newspaper publisher Axel Springer and the television broadcaster ProSiebenSat.1.
The improved outlook emboldened Mathias Döpfner, chief executive of Axel Springer, to proclaim in a recent conference call with analysts that “we are on the verge of a reassessment of the media sector,” which has been out of favor among investors. Investors have been worried not only about cyclical swings in advertising but also about structural changes to the business, stemming from the spread of digital technology.
The strength of the upturn in advertising has caught analysts by surprise, and now they are upgrading their forecasts. Zenith Optimedia, a media buying agency owned by Publicis Groupe, says global ad outlays will rise 3.5 percent this year; that is a sharp upward revision from a previous forecast of 0.9 percent growth, issued in December.
Television is doing particularly well, with some European channels reporting double-digit increases in ad revenue after a steep, two-year downturn. Print media have generally not fared as well, though the rate of decline in spending has slowed. For the first-half of this year, WPP Group, a London-based advertising company, reported the first growth in its traditional advertising business, which includes media like television and newspapers, since the third quarter of 2008.
Meanwhile, spending on digital advertising has continued to increase, albeit more slowly. Forecasters now expect increases in the range of 10 percent to 15 percent this year, compared with 25 percent or more in the years leading up to the crisis.
Bertelsmann, which is controlled by descendants of the founding family, said the biggest gains in the first half came from its advertising-dependent businesses. These include RTL, which operates television and radio channels in Germany, France, the Netherlands and other European countries, and Gruner + Jahr, the Hamburg-based magazine publisher. At RTL, for example, operating income rose 42 percent, to €533 million, as revenue increased 8 percent, to €2.7 billion.
Last month, RTL unloaded one of its weaker-performing television businesses, the British channel Five, selling it to the media tycoon Richard Desmond for €125 million.
Not all of Bertelsmann’s gains were due to advertising. The company also reported an 8 percent increase in revenue at Random House in the first half, helped by sales of 6.5 million books and e-books from the “Millennium” trilogy by Stieg Larsson in the United States and Germany.
The company said its e-book sales climbed about 300 percent from a year earlier. In the United States, the company said, e-books accounted for about 8 percent of overall sales at Random House.
While Random House is growing, Bertelsmann’s book club business, a traditional mainstay that has been shrinking for years, is being managed under what Thomas Rabe, Bertelsmann’s chief financial officer, described in a conference call as a policy of “controlled decline.” Bertelsmann book clubs in several countries have been sold; the company has been cutting costs at clubs that remain, in countries like Germany and France.
Bertelsmann upgraded its outlook for the full year, saying it now expected net income to exceed €500 million, up from an earlier range of €400 million to €500 million.
But company executives, echoing the views of others in the business, cautioned that the outlook for advertising in the fourth quarter, generally the biggest revenue-earner for ad-dependent media companies, remained unusually uncertain. Also, a rebound in European television advertising revenue had already begun in the fourth quarter of last year, so comparisons may look less favorable than in the earlier part of this year, which followed particularly weak conditions in 2009.
“But the important thing is we don’t see a reversal of the trends we have seen since the beginning of the year,” Mr. Rabe said.
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