Two BMG Execs Step Down After Napster Deal

The top two executives at BMG Entertainment, the music division of Bertelsmann AG, are resigning, but the German media giant says the moves have nothing to do with its breakthrough deal with Napster Inc.

The announcement of the departures of Michael Dornemann, chairman, and Strauss Zelnick, president and CEO, came about less than a week after the company announced an online song-distribution partnership with Napster.

Part of Restructuring, Company Says BMG spokesman Keith Estabrook said the two executives’ departures were related to a restructuring over the past year by Bertlesmann CEO Thomas Middelhoff. The changes have moved some divisions from BMG Entertainment to other segments of the company, he said.

For instance, BMG’s music club and online distribution divisions were put under the control of Andreas Schmidt, who heads Bertelsmann’s e-Commerce Group and was the executive responsible for finalizing the deal with Napster. And Sonopress, which makes the company’s CDs, was shifted from BMG to Bertelsmann’s Arvato printing unit.

With the restructuring, BMG will be left resembling an Old Economy music company, responsible mainly for signing acts and producing songs, Estabrook said. BMG owns more than 200 record labels, including Arista, RCA and Windham Hill, which represent such artists as David Bowie, Whitney Houston and Annie Lennox.

The deal with Napster, the online music swapping service, marked a sharp break with other members of the music industry, which have sued Napster for copyright infringement and sought to have the service shut down. A court decision is expected in the coming weeks.

Besides BMG Entertainment, Bertelsmann’s holdings include the book publisher Random House, CDNow and 40 percent of barnesandnoble.com. It has annual revenues of $17.6 billion.

Dornemann, who has been with Bertelsmann for 18 years, is credited with founding BMG in 1987 by combining the company’s existing music operations with RCA, which Bertelsmann acquired. Zelnick was named president and CEO of BMG Entertainment in July 1998.

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