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Murdoch makes German TV move

Digital deal will give media magnate breakthrough into mainstream European broadcasting

RUPERT MURDOCH seems at last to be on the verge of making a breakthrough into television in mainland Europe.

RUPERT MURDOCH seems at last to be on the verge of making a breakthrough into television in mainland Europe.

The magnate is in talks with Leo Kirch, the German media baron, to buy a 25 per cent share in Premiere, Germany's sole digital television company.

The discussions with KirchMedia follow a series of disappointments for Mr Murdoch in Europe. Deals with leading European media groups such as Germany's Bertelsmann have been announced only to founder shortly afterwards. Most recently, a second attempt to secure Silvio Berlusconi's commercial television interests failed.

Mr Murdoch's problems in Europe were underlined by the resignation of Letizia Moratti, chairman of News Corp Europe. Mrs Moratti, one of Italy's most successful businesswomen, claimed last week that Mr Murdoch had the wrong approach to the European market.

She said: "You can't enter Europe without being European. You need to act as a real European entrepreneur."

Dealings between Mr Murdoch and Mr Kirch have been particularly fraught. Last year, an agreement between the two men over Premiere fell apart because of disputes over management control. Bertelsmann, the German media giant, stepped in by injecting its digital interests into Premiere - thereby excluding News Corp.

But this alliance fell foul of the German anti-trust authority, the Kartellamt, and Bertelsmann was forced to sell most of its holding in Premiere.

Now Mr Murdoch has a chance to revive a deal with Mr Kirch on his terms. Premiere, in which KirchMedia holds a 95 per cent stake, has lost DM4bn (£1.3bn) since its launch. Two weeks ago, New York bankers refused KirchMedia a $2bn (£1.2bn) loan to fund further start-up losses at Premiere. On current form, Premiere looks a very high-risk investment. It is competing with more than 20 free channels and KirchMedia has been forced to share its digital set-top boxes with these competing channels.

Meanwhile the attempt to use World Cup soccer to boost Premiere has turned into a fiasco. The German public was outraged that it might have to pay to view the World Cup in 2002 and 2006 after KirchMedia acquired the sole screening rights. The company has now promised that all World Cup games involving Germany would be transmitted live by free-to-air channels.

Despite these problems, KirchMedia claims Premiere has attracted 1 million digital subscribers and that heavy marketing is beginning to increase subscriptions rapidly.

Mr Murdoch has long sought a deal with Mr Kirch that will give him a big media presence in Germany. As the pre-eminent owner of German rights to Hollywood films, Mr Kirch plays a vital role throughout German television. He also owns controlling stakes in five free-to-air channels, including Pro Sieben, the most profitable German television company, and an interest in Springer Verlag, which publishes Bild and Die Welt.

He also has interests in Mediaset in Italy and Telecinco in Spain. By contrast, Mr Murdoch's position in Germany is weak. He owns a 49.9 per cent stake in Vox, a television company with a 3 per cent market share, and he has recently launched tm3 - a free-to-air cable channel that is being boosted by coverage of Champions' League football games.

Much now depends on Mr Kirch's finances. On Friday, KirchMedia announced that it was rationalising its television holdings. Mr Kirch's son, Thomas, has transferred his controlling interest in Pro Sieben to KirchMedia. This looks like a prelude to a flotation or a deal or possibly both.