BMG Direct to Acquire The Columbia House Company

Acquisition signals milestone in BMG Direct’s growth strategy

New York – BMG Direct, a division of DirectGroup Bertelsmann, announced today that it has reached an agreement with The Blackstone Group to acquire The Columbia House Company. Terms of the deal were not disclosed. The transaction is subject to certain government approvals and other customary conditions. Stuart Goldfarb, President and CEO of BMG Direct, will serve as President and CEO of the newly acquired company.

This move represents the coming together of two great brands with complementary operational structures and business models. BMG Direct is the largest direct to consumer retailer of recorded music in the U.S. while Columbia House is the largest specialized retailer of DVDs. The combined expertise of these two leading direct marketing companies will create broader product offerings for their members and a larger customer base for both brands.

Ewald Walgenbach, CEO of DirectGroup Bertelsmann said, “Today is an important and exciting day for both companies and this transaction is consistent with DirectGroup’s commitment to grow our worldwide businesses. We are bringing together two of the U.S.’s most respected and knowledgeable direct marketing media companies. The combined BMG Direct and Columbia House entity will offer a broader selection of products to a larger customer base, while at the same time creating cost efficiencies.”

Stuart Goldfarb said, “These two great brands share a focus on their customers, their employees and their products. Columbia House is the market leader in the DVD business; this transaction provides great opportunities for us and for our customers, who now will be able to access a broad selection both of music and DVD titles with the same level of customer satisfaction they’ve come to know and expect. “

BMG Direct has long-standing relationships with its customers and has a history of expertise in being able to reach consumers personally with targeted entertainment offers. The company mails over 68 million catalogues to customers each year and operates a website (www.bmgmusic.com) which serves millions of customers online.

Scott Flanders, Chairman and CEO of The Columbia House Company said, “We are proud of the fact that Columbia House’s continued success has led to the joining of these two great brands. The pairing of BMG Direct and Columbia House will create a world class experience for our members. We very much look forward to working with Stuart Goldfarb and his team.”

The Blackstone Group served as financial advisor to Columbia House. Simpson Thacher & Bartlett LLP provided Columbia House with legal counsel.

About BMG Direct:

Based in New York City, BMG Music Service and online music retailer CDNow form BMG Direct which is a unit of DirectGroup Bertelsmann. BMG Music Service is one of the world’s largest direct-to-customer retailers of music. In addition to the BMG Music Service brand, the company operates four different specialty clubs – the BMG Classical Music Club, the BMG Jazz Club, Sound & Spirit (Christian and Gospel music), and Ritmo y Pasion (Latin music) – and offers a wide variety of listening choices including pop, rock, R&B, adult alternative, easy listening, jazz, blues, classical, Latin, hip-hop, country, Christian and many more. Customers are offered a selection of over 14,000 titles provided by the four major music groups and over 100 independent record labels and can shop for music directly from catalogues or online at www.bmgmusic.com.

About The Columbia House Company:

The Columbia House Company is the world’s largest direct marketer of music, videos and DVD home entertainment product. With approximately 8 million offline and online club members in the United States and Canada, the company provides direct-to-consumer marketing of over 8,700 DVD titles and 8,000 music titles through its entertainment clubs. The company’s Website, www.columbiahouse.com, is one of the premier ecommerce brands and consistently ranks among the Web’s top 25 shopping destinations. Since its inception in 1955, Columbia House Company has a proven record of excellence in database marketing, market segmentation, credit screening and niche market merchandising. Headquartered in New York City, The Columbia House Company is a general partnership, indirectly owned by The Blackstone Group, the New York based private investment bank.

About DirectGroup Bertelsmann:

DirectGroup Bertelsmann integrates Bertelsmann’s global media direct-to-customer businesses. Roughly 32 million customer relationships secure DirectGroup’s position among the largest enterprises in media commerce. The cornerstone of this success are the book and music clubs in 22 countries incorporating strong brands like France Loisirs, Book-of-the-Month, Der Club,. Circulo de Lectores and BMG Music Service. Members have access to the clubs’ product range via catalogs, internet or one of the more than 600 worldwide club shops. Since August 2002, Ewald Walgenbach has headed the unit. DirectGroup Bertelsmann is a division of German-based Bertelsmann AG. In fiscal year 2004, DirectGroup made 2.2 billion euros in revenues with more than 12,000 employees.

About The Blackstone Group

The Blackstone Group, a private investment and advisory firm with offices in New York, Atlanta, Boston, London, Hamburg, and Paris, was founded in 1985. The Firm has raised a total of approximately $32 billion for alternative asset investing since its formation. The Blackstone Group’s six core businesses are Private Equity Investing, Private Real Estate Investing, Corporate Debt Investing, Marketable Alternative Asset Management, Corporate Advisory, and Restructuring and Reorganization Advisory. www.blackstone.com