Bertelsmann's CDnow to become Amazon storefront

Bertelsmann AG has tapped online retailer Amazon.com to help run Bertelsmann's music retailing Web site, CDnow, company representatives said on Tuesday.

The Gütersloh, Germany, media company has contracted Amazon.com to provide services to CDnow, according to spokespeople from both companies. Bertelsmann's BeMusic division oversees the CDnow music site and Bertelsmann's BMG Music Service record club.

"Amazon can confirm we have reached an agreement with CDNow to provide services for the CDNow Web site, and that CDNow affiliates have been notified, but we cannot provide any details beyond that at this time," Amazon.com's U.K. spokeswoman, Rachel Silk said in an email response to questions.

A Bertelsmann spokesman also declined to offer details of the partnership.

Under the terms of the agreement between Bertelsmann and Amazon.com, scheduled to be officially announced within the next few weeks, CDnow will remain a part of BeMusic, a person familiar with the situation said.

The move comes as Bertelsmann continues to reorganize its worldwide IT and e-commerce operations in order to cut costs. Since removing its Chief Executive Officer Thomas Middelhoff earlier this year, Bertelsmann has scrapped many of his loss-making Internet projects including its Internet book club bol.de GmbH (BOL).

The CDNow deal will be similar in structure to Amazon's deal with Borders Group Inc., the person familiar with the situation said. Amazon handles all operations for the Borders.com Web site, such as inventory management, customer service and shipping, paying Borders a commission on sales it makes through Borders.com.

Amazon.com, which sells products on behalf of partners ranging from individual sellers to Gap and Toys R Us, said last month when announcing its third quarter financial report that almost a quarter of the items sold through its site in North America in the quarter came from third-party transactions.

Bertelsmann bought CDNow in July 2000 for US$117 million, but earlier this month closed CDnow's office in Fort Washington, Pennsylvania, laying off at least 33 people and announced it was closing the affiliated online music news service Allstarnews.

According to a report in Tuesday's online edition of The New York Times newspaper, Bertelsmann will now use CDNow as a promotional tool for BMG Music Services, which will have the right to manufacture and sell 13,000 CDs at prices below regular retail to customers purchasing a certain number of music titles.

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