Kate Bulkley, Media Analyst.

Germany, Rupert's next hope

By Kate Bulkley

Cable & Satellite Europe

www.informamedia.com

01 Apr 1999

It looked like the deal that would finally give Rupert Murdoch a European foothold.

The banker who thought it up was told that the big man latched onto it like a child to candy. Murdoch hopped on to a plane to Paris to present the idea of a merger between BSkyB and Canal+ to the French company's chief executive officer Pierre Lescure.

The merger of Europe's two biggest pay television companies would create an Anglo-French axis to build out pay-television across Europe. Canal+ takes out a potential competitor in Europe; Murdoch's BSkyB gets to grow beyond the UK. And European competition authorities would likely give it the green light because Sky is Canal+ has a foothold, and vice-versa. Pan-European synergies would cut programming costs. A European pay-television power-house would emerge to stand up to Hollywood. Simple.

Well, maybe too simple. In the end it all blew apart over control. Who should run this new behemoth of a pay TV company? BSkyB's man Mark Booth or Canal+'s Lescure, both were unwilling to give up management control.

Furthermore, Murdoch's reputation for importing cheap programming was not well-received in the corridors of French cultural power. Canal+ has a good working understanding with the French government that includes supporting the French film industry. Canal+ is not interested in upsetting that particular apple cart.

Anyhow, Murdoch needs the French more than Canal+ needs him. Canal+ has spent a lot of money launching its digital satellite service in France, and it is over a year ahead of Sky Digital and doing well.

Canal+ is also slugging it out in Poland, with rival @Entertainment, where an off-again, on-again merger is still pending. The Italian pay-television business has been slow to re-start, after inheriting the Tele+ service set up by former rival Nethold, but as Murdoch's recent failed attempt to get into Italy proved, the Italian government likes the French much more than they do Mr Murdoch.

But even as the French door slams for Murdoch, another may be opening up in Germany. The KirchMedia deal, prosaically-named the Traviata deal, designed by the Kirch Group to attract some badly-needed money into its financially-strapped operations, has not gone ahead, led by Italy's Mediaset and Prince Al-Waleed Bin Talal.

Mediaset parent Fininvest will invest 195 million Euros in KirchMedia, the first free-to-air pan-European television network to sell advertising, free-TV and production. Fininvest and Prince Al Waleed will each invest a $209 million (£131 million) for a 3.2 per cent stake each in KirchMedia, a joint investment of $418 million. Mediaset said that the venture said to be worth one billion euros, would reach a potential audience of 200 million viewers.

Murdoch was originally supposed to be part of the KirchMedia bail-out crew, but notice that the new entity is all about free-television and advertising sales and production. Murdoch is more interested in pay-television, which is his speciality. And, he may have an opening soon.

Luxembourg-based CLT-UFA, owned by Bertelsmann and Belgian company Audiofina, has finally decided to focus on what it knows best, free-television. So, it will sell down its 50 per cent stake in German pay-television service Premiere to five per cent. This will leave the Kirch Group with a 95 per cent stake in Premiere and 100 per cent ownership of the struggling Germany pay-television platform DF1.

Given the financial duress of Kirch, he will likely search for a new partner and Murdoch would happily (if the price is right he gets some management power) step into the breach.

But, however simple this may look, there could be another French offensive in the works that could upset a Murdoch investment to Premiere.

Over the past year or so, Vivendi and Bertelsmann have been increasing their ties. The two companies plan to share a joint venture in specialised publishing. They are also in partnership in Europe with US Internet service provider AOL and in March, Bertelsmann's CEO and chairman Thomas Middelhoff, became a member of the supervisory board of Vivendi.

Vivendi is interested in possibly increasing its 20 per cent stake in Audiofina to a controlling share. This could give Vivendi a 49 per cent stake in Luxembourg broadcaster CLT-UFA, in which Bertelsmann holds about 40 per cent.

Albert Frere, who controls Audiofina through a company called Groupe Bruxelles Lambert, has said he has no interest in selling out to Vivendi.

However, ... if all this sounds like a game of Chinese boxes, well it is. One box opens and voila, another box. One thing is clear though, Europe's media powerhouses, namely Vivendi, Bertelsmann, Kirch and Mediaset are all jockeying for position. And there may or may not be room for Murdoch and I have always maintained that it is a bad move to bet against murdoch.

The players themselves chose to name the Kirch bail-out after an opera La Traviata. And Murdoch - as the owner of a couple of US baseball teams - is familiar with the phrase: the game's not over until the fat lady sings. She's still singing.

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