IS BMG HURTING BERTIE?

Insiders claim the company will post a loss of a whopping $150 million for the fiscal year. It would be the first time in its 15-year history the company ended the year in the red, and the first time in memory any of the Big Five music congloms have ever announced a year-end loss.

That has caused increased anxiety at BMG stateside as the COO reigns are handed over to "corporate pragmatist" Michael Smellie with the mandate to stop the bleeding.

The appointment of Smellie follows the ouster of Chief Administrative Officer Konrad Hilbers after a "disastrous" six-month run described by a high-level source as "a massive train wreck." Hilbers took the job in the wake of last year's executive shake-up by Bertelsmann boss Thomas Middelhoff.

Meanwhile, attorneys, managers and music industry insiders—as well as the BMG U.S. rank-and-file—are questioning the Rolf Schmidt-Holtz/Smellie team's ability to lead BMG out of its current morass due to its lack of experience in the record business.

And BMG's losses, combined with the problems of Bertie's book clubs, have speculators speculating that these underperforming companies will be put on the block since they can't come close to Middelhoff's stated aim of achieving "a return on sales of at least 10% over the next three years." That is part of his overall scheme to launch an IPO for the company by as early as next year, or 2003.

The real question remains who'll buy BMG? It can't be one of the other Big Five because of regulatory concerns, which means the company may have to sell parts of the company to have any acquisition approved by EC's trustbuster Mario Monti and company.