Schmidt is understood to be leaving Bertelsmann because the internet division he set up at the request of Bertelsmann CEO Thomas Middelhoff started to unravel after the millions of dollars ploughed into it failed to create profitability.
Middelhoff hired Schmidt, the former head of AOL Europe, in June 2000 as part of his plan to overhaul the German media dinosaur.
Schmidt quickly made his mark with the controversial decision to partner with Napster, the online song-swapping service and the music industry's enemy number one.
The deal is thought to have ruffled the feathers of Bertelsmann executives, particularly at BMG, which was locked in a legal battle with the website along with the other four international recording giants -- EMI, Universal, Warners and Sony.
Schmidt also ploughed money into a number of acquisitions including online retailer CDNow and online music company Myplay.com. CDNow is understood to be in trouble and Napster, which is struggling to becoming a legitimate business, has been beset by a series of delays to its relaunch date.
This follows the news earlier this year that the company is merging its online bookshop BOL.com with its offline book clubs into a division called BeMusic Direct.
Stuart Goldfarb, the president of Bertelsmann's BeMusic Direct is expected to take on Schmidt's responsibilities.
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