Dieter Hahn, managing director of Kirch Group, indicated last week that Mr Berlusconi, a long-standing business associate of Mr Kirch, was the preferred minority partner for his German television and film interests.
"It is very likely that there will be a deal within the first quarter of 1999," said Mr Hahn.
Kirch Group Germany's largest private television and film concern. A deal between Mr Kirch and Mr Berlusconi would leave Mr Murdoch without significant influence in the largest TV market in Europe. Mr Murdoch has said repeatedly he wants to position himself strongly in this market and has had prolonged - but fruitless - discussions with Mr Kirch, Mr Berlusconi, Bertelsmann and Canal Plus of France about possible alliances. Currently he jointly owns Vox, a small television company, with CLT-Ufa. It has only 3 per cent of the German television market.
Now Mr Kirch is expressing a clear preference for Mr Berlusconi as minority partner to finance his ambitions in German digital television. No final decision has been taken, but Mr Hahn thinks "the most likely outcome" will see Kirch combine the sale of a small minority stake with a public offering of 30 per cent.
"If Kirch wants 51 per cent, that leaves an upper limit of 19 per cent for outside investors," said Mr Hahn. .
Mr Kirch needs to strike a deal because his move into digital television has racked up losses running into billions of marks. To introduce other investors and pave the way for a stock market flotation, Mr Kirch has separated his digital television interests from his newspapers and his film and television production assets. Despite rumours that Mr Kirch is heavily indebted to Deutsche Bank, Mr Hahn said last week that Kirch could launch the float immediately.
Mr Kirch's newspaper interests include his holding in Springer, the newspaper group which has pre-emptive rights over the Kirch stake. Friede Springer, the widow of the group's founder, has vowed to oppose a deal with Mr Murdoch.