Kirch to cut losses and sell digital service to Murdoch

Leo Kirch, the troubled German media magnate, has decided to sell Premiere, Germany's digital television service, to Rupert Murdoch.

Mr Kirch is this weekend in talks with his banks about restructuring his media empire. This has been brought close to collapse by debts of €6bn (£3.6bn).

Sources close to the Kirch empire indicated that he would seek to sell Premiere to BSkyB, where Mr Murdoch is chairman and controls 34 per cent of the shares, although talks have not yet taken place. Kirch already looks certain to sell its rights to Formula 1 and its 40 per cent stake in Axel Springer, publisher of Bild-Zeitung, Germany's mass-market daily.

The break-up of Mr Kirch's empire puts Mr Murdoch in a strong position to buy Premiere at a knock-down price. There are few other potential buyers.

BSkyB recently announced it would exercise a put option worth nearly €1.5bn on its 22 per cent holding in Premiere, at the same time writing off the value of the investment. Under the current circumstances, it would be nearly impossible for Mr Kirch to find both €1.5bn to pay the BSkyB option and satisfy his creditor banks. So a fire sale of Premiere would be an attractive solution.

Business and political opposition to Mr Murdoch entering Germany has been intense, but nobody else could plausibly rescue the country's digital TV.

He has been keen for many years to break into the German market, but has struggled to do so. Acquiring Premiere would be a gamble, but it would give him a monopoly over German digital TV.