Murdoch eyes Kirch stake

News Corp boss seeks political allies in Germany

RUPERT MURDOCH sets off for Cologne next week to seek political support for a possible television venture between News Corp and the indebted German media conglomerate Kirch Gruppe. But media analysts wonder whether the media mogul's attempt to schmooze the Germans is a waste of time.

Mr Murdoch will be the main speaker at a press gathering in Cologne on 14 June at the invitation of the Social Democrat leader of the North Rhine Westphalia regional government, Wolfgang Clement.

He is to make this unusual public appearance amid speculation that he may be about to take a stake in Kirch, after the European Commission vetoed Kirch's digital TV link-up with Bertelsmann on competition grounds. It is unlikely Mr Murdoch will offer to buy a stake in Kirch, preferring his usual tactic of waiting to be invited in.

That could happen soon. Kirch lost DM1.4bn (pounds 500m) on its attempted foray into digital television and is looking increasingly vulnerable. A previous attempt at an alliance between Mr Murdoch's BSkyB and Kirch collapsed last year because Mr Murdoch was unhappy with the terms being offered.

Ever since then, Mr Murdoch has not hidden his desire to grab a larger share of the German television market, which, with 32 million TV households, is the biggest single language television market in Europe. "If we were allowed to we would go in [to Germany] at full speed," said a Murdoch aid.

But he has powerful opponents, not least Bertelsmann, the country's largest media company. In an interview with the magazine Der Spiegel last week, Bertelsmann chief executive Mark Woessner said he would support Kirch with millions of marks in exchange for film distribution rights to prevent Kirch linking up with News Corp.

Mr Murdoch's only television business in Germany is his 49.9 per cent stake in the free terrestrial channel Vox. In Germany, where there are 34 free terrestrial channels, the competition would be fiercer than in the UK. Only two of those channels make a profit. Investors have been equally disappointed with the performance of Germany's pay-TV market.

"It's standard for Murdoch to be opportunistic, but it doesn't make a lot of sense for him to enter a failing market," said Mathew Horsman, media analyst at Henderson Crosthwaite International Brokers. "It's hard to see how you could replicate BSkyB's success there - it certainly hasn't worked anywhere else yet."

BSkyB, in which News Corp has a 40 per cent stake, has dominated pay- TV services in the UK and is now the jewel in the crown of News Corp's global pay-TV empire. "Premium pay-TV has been slow to take off in Germany," said Helena Renfrew Knight, an analyst at Spectrum Strategy Consultants in London. She said Premiere, the pay-TV channel owned by Kirch, Bertelsmann and Canal Plus of France and launched in 1990, has fewer than 2 million subscribers. Kirch's DF-1 digital pay-TV channel "has probably fewer than 50,000 subscribers". Kirch's projections are for 600,000 by the end of this year.

Mr Murdoch's aspirations in Europe could face tough scrutiny from competition watchdogs even though his presence on the continent is small. Apart from Vox, he has a few radio stations and a couple of newspapers.

Major European media companies have all been trying to carve alliances in digital television to share the investment burden. Digital TV, which allows more channels, clearer images and interactive services such as home shopping, is seen as the future driver of earnings growth in the industry. "There has been an endless sequence of alliances that didn't make the last hurdle," said Mark Beilby, media analyst with Deutsche Bank.

One of the main obstacles has been EU Competition Commissioner Karel Van Miert, who is determined to prevent domination in the fledgling industry.

Yet Mr Murdoch's biggest rivals are established European media companies. In a speech to European ministers in London in April, Mr Murdoch accused Europe's state-owned TV companies of protectionism. Earlier this year, News Corp tried and failed to buy a stake in Italy's Mediaset TV company controlled by former Italian prime minister Silvio Berlusconi's Fininvest.

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