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BSkyB set to take £330m stake in Leo Kirch's pay-TV platform

Bill McIntosh
Friday 22 October 1999 23:00 BST
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BSKYB, THE pay-TV broadcaster controlled by Rupert Murdoch, is near to striking a landmark 1bn German mark (£330m) deal to take a 24.9 per cent interest in Premiÿre World, the digital television platform owned by Kirch Group, Germany's number-two media company.

BSKYB, THE pay-TV broadcaster controlled by Rupert Murdoch, is near to striking a landmark 1bn German mark (£330m) deal to take a 24.9 per cent interest in Premiÿre World, the digital television platform owned by Kirch Group, Germany's number-two media company.

It is understood that Tony Ball, chief executive of BSkyB, is negotiating for Leo Kirch, the founder and owner of the privately held group, to inject new equity into the digital television subsidiary. If terms can be agreed, and German regulatory approval is forthcoming - both of which are big ifs - the deal would seal the UK pay-TV broadcaster's first major investment in Europe.

For News Corp, which owns 40 per cent of BSkyB, a pact with the 72-year-old Bavarian media mogul would mark its third investment in Europe this year. Yet from these relatively tentative steps a foothold in European broadcasting is emerging.

Despite a commanding media presence in the UK, America and Asia, Mr Murdoch's advance across the Channel has been characterised more by false starts than by real progress. Last month Letizia Moratti, the Italian broadcasting executive, quit News Corp Europe less than a year after helping to set up the unit and after overseeing the purchase of a 35 per cent stake in Stream, the Italian digital television platform.

Should BSkyB succeed in buying the stake in Premiÿre, it would complement News Corp interests in two German television stations. The former woman's channel tm3, bought in the spring, is being transformed into a sports channel after its acquisition of the German rights for Champions' League football. News Corp also has an interest in Vox, a general entertainment channel.

Premiÿre comprises 22 television channels and two pay-per-view packages. It features seven movie channels, two sports channels, eight general entertainment channels and various speciality stand-alone channels.

Kirch has struggled since the mid-1990s amid start-up losses in the digital pay-TV business estimated in excess of £1bn. On at least two occasions Mr Murdoch has aborted talks about buying into the Munich-based group.

Over the past decade Kirch has expanded into free-to-air television, sports-rights ownership and publishing from an early move into Hollywood film distribution and rights ownership after the Second World War. Kirch's activities are organised through numerous subsidiaries, but include a 40 per cent stake in Axel Springer Verlag, publisher of Bild, Germany's biggest tabloid newspaper.

Industry-watchers say Kirch's structure is designed to dodge public scrutiny. But the lack of transparency has also hindered the group's ability to secure financing as well as equity infusions from Mr Murdoch and Silvio Berlusconi, the former Italian prime minister and media magnate. In 1996, when BSkyB first considered investing in DF1, one of the forerunners of Premiÿre World, the then chief executive Sam Chisholm, who eventually declined to invest, remarked: "The banks could not make sense of his business plan and neither could we."

Fortunately for Mr Kirch, Deutsche Bank and, more recently, Morgan Stanley Dean Witter, have injected 3bn marks to keep the media group afloat. Just a month ago Kirch and Morgan Stanley were forced to cancel a 2bn mark international bond offering. Since then, the talks with BSkyB, confirmed by Mr Murdoch last week, have been ongoing.

For Mr Murdoch and BSkyB, the deal to take a minority position in Premiÿre World will satisfy a longstanding desire to expand Britain's biggest broadcaster in Europe's largest, and potentially most lucrative, pay-TV market.

In a move designed to simplify his company's structure, Mr Kirch earlier this month consolidated into the main group his son Thomas's 58 per cent interest in ProSieben Media, which broadcasts Pro7 and Kabel1. Mr Kirch's other interests include Europe's biggest film library and various television properties such as sports network DSF and SAT1.

In addition to the losses in digital television, Mr Kirch's cash resources have been strained after paying $2bn with Sporis Holding of Switzerland for World Cup football rights in 2002 and 2006, and bidding more than $4bn to retain Hollywood film rights.

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