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Kirch and Saban

Overview

This profile considers the defunct Kirch media group, with some information about Saban, Formula 1 and EM.TV.


It covers -

  • introduction
  • shape
  • collapse and aftermath
  • Formula 1 and EM.TV
  • Saban
  • studies

Introduction

The Kirch media group was Germany's only national pay television network. It expanded aggressively beyond Germany, in response to competition concerns and attempts by groups such as Liberty Media to build rival networks, with an expensive move into licensing Formula 1 racing and other sports broadcasting rights.

As of 2001 Kirch had substantial film/video production interests but is probably best known for its involvement with F1 racing. Performance by its new media units was underwhelming. Murdoch's News, Axel Springer and the Berlusconi group held small stakes in Kirch (around 2.4% each) and larger stakes in particular assets. Kirch in turn had small stakes in News and Berlusconi's Mediaset. It held around 40% of Axel Springer.

During mid 2002 Kirch went into receivership prior to declaration of bankruptcy by a succession of its units. Different bids to take over some or all of its operations did not proceed. In mid 2003 its ProSiebenSat arm was acquired by the Saban group.

Shape

The Kirch group began as a German distributor for US feature films (an early highlight was licensing Buster Keaton's personal library), moved into film/video co-production and production, and then into cable television and global rights trading - notably though a US$1.54 billion deal with Formula 1 czar Bernie Eccleston.

KirchMedia operated five free-to-air television channels in Germany (SAT.1, ProSieben, Kabel 1, Deutsches SportFernsehen DSF and the news channel N24) and had stakes in Berlusconi-controlled Telecinco (Spain) and Mediaset (Italy).

It had film/video production units in Germany and co-production or co-finance arrangements in other countries, responsible for around 1,000 hours of content each year. Co-financing deals with US studios were generally reflected in exclusive marketing rights for the German-speaking area. Its feature film, TV film, series, sport and documentary library contained around 63,000 hours of fiction footage.

An indication of Kirch holdings as of 2001 is here. The byzantine structure of the group means that the often selective information on the various Kirch sites should be used with some caution.

collapse and aftermath

The group's collapse has proved contentious. In February 2002 its pay tv arm Premiere was reported as losing £1m per day, with upcoming expenditure of £1.8bn in film deals and programming costs over four years to 2006 plus rights for the German football league costing a further £336m up to 2004. One broker unkindly described it as "a black hole" that because of excessive programming costs would never make money. Those costs in 2000 had been around £453m on revenue of around £490m.

Overall group indebtedness was around £5.3 billion. Murdoch-controlled BSkyB had exercised a put option, requiring Kirch to buy back its 22% of Premiere (acquired 1999) for £1.1 billion.

During mid 2002 the money - or merely the patience of its bankers and partners such as Murdoch - ran out. Kirch PayTV announced its insolvency in April, followed by parent KirchMedia and other units.

In November 2002 there was an announcement of 'in priciple' agreement by major German publisher Heinrich Bauer to take over much of Kirch's operations. Given opposition by regulators that takeover did not, however, proceed. By early April 2003 major elements of Kirch appeared likely to come under the control of the Saban group after initial expressions of interest by Murdoch, Sony, Axel Springer and French commercial broadcaster TF1 (owned by construction giant Bouygues).

Saban gained control of ProSiebenSat and other assets for £915m in August 2003. Deutsche Bank gained Kirch's 40% stake in Axel Springer at that time for US$653 million (in lieu of an outstanding US$725 million loan to Kirch).

Leo Kirch commenced litigation against the Deutsche Bank, alleging that bank CEO Rolf Breuer triggered the insolvency. Breuer, somewhat surprisingly in a nation where major bankers aren't distinguished by candour, told Bloomberg Television in February 2003 that "What one is reading and hearing is that the financial sector is not prepared to supply further funds or outside resources" - presumably not encouragement for potential lenders.

Kirch sought €100 million from Breuer and an overall U$7.4 billion in damages from the bank, including US$950 million for devaluation of ProSiebenSat 1 and US$1 billion for the loss of the Axel Springer stake.

In December 2003 the bank was ordered to pay damages to Mr Kirch for Breuer's "negligence". An appeals court in Munich subsequently absolved Breuer of personal liability, indicating that his comments were made in a professional capacity. Kirch is reported to be moving the litigation to the US.

In 2005 Axel Springer announced that it would acquire Saban's stake in ProSiebenSat for around €2.5 billion. Saban's P7S1 Holding, was to receive a 2.4% stake in Springer as part of that deal, which was abandoned in February 2006 after refusal by regulators. Several private equity groups and Turkish media group Dogan Yayin then sought to acquire ProSiebenSat.

Formula 1 and EM.TV

Kirch's collapse was associated with its involvement in broadcast rights for Formula 1 auto racing.

Those rights were held by interests associated with Bernie Ecclestone, which over 1999-2001 raised US$3.4 billion from a bond issue and sale of 75% of its stake in SLEC Holdings, the entity that controlled Formula One Management and Formula One Travel (and thus the bulk of around US$800 million revenue each year).

In 2000 EM.TV & Merchandising, a high-profile German media company, acquired Speed Investments - which owned 50% of SLEC - and an option to buy a further 25% of SLEC from an Ecclestone holding company for US$987.5 million. EM.TV, founded in 1989, had paid US$680 million for The Jim Henson Company (centred on The Muppets) in 2000.

EM.TV shares rose 20,000% between 1997 (when the company went public on the Neuer Markt, with US$15 million annual sales) and 2000. However they crashed by 95% during 2000 amid accounting problems and announcement of a US$1.2 billion loss. Kirch appears to have identified EM.TV as a mechanism for gaining control of SLEC. Kirch funded Speed's purchase of another 25% of SLEC, in turn acquiring control of Speed from EM.TV via an intermediary. The total cost to Kirch was around US$1.6 billion. Funding was provided by banks, notably some US$987.5 million from Bayerische Landesbank. The lenders used Speed's 75% interest in SLEC as security.

Progressive collapse of the Kirch group under the weight of its debts saw a cascade of bankruptcies and receiverships. The entity that controlled Speed filed for bankruptcy in June 2002, with Bayerische Landesbank, JP Morgan Chase and Lehman Bros gaining Kirch's shareholding in Speed and thus 75% of SLEC. Control of F1 has since been embroiled in disputes between the banks, Ecclestone interests and auto manufacturers.

EM.TV sold Henson back to the Henson family in 2003 for a reported US$89 million, after earlier disposing of the EM.TV production arm in the US. As of 2004 it centres on a 45% stake in TeleMünchenGruppe (TMG) - Germany's third largest television producer - and a 50% stake in Junior.TV, a German childrens video program library.

In 1999 EM.TV acquired a 50% stake in Australia's Yoram Gross Film Studios from Village Roadshow.

Saban

Haim Saban was born in Alexandria, Egypt, and moved to Israel with his family at age 12. He became a promoter and performer in what became a popular Israeli Beatles tribute band, the Lions of Judah, before moving to Paris and then Los Angeles where he was active with a licensing scheme that provided animation studios and television stations with free music for kids cartoons, with Saban Entertainment receiving a royalty whenever the cartoon was rebroadcast.

In 1989, after acquiring a substantial library of kids video programming, he sold a 25% stake to Luxembourg-based media conglomerate RTL for US$15 million. In 1993 he sold rights to the Mighty Morphin Power Rangers cartoon series (acquired cheaply from Japan) to News Corporation's emerging Fox Kids Network, retaining an estimated 12% of lucrative royalties on Rangers merchandise.

In 1995 Saban Entertainment formed a joint venture with Fox Kids Television, repurchasing the RTL stake for US$40 million. (Bankers Allen & Co. took 1% of the equity, News took 49.5% of the new entity.) Two years later Saban and Fox bought the Family Channel from controversial televangelist and presidential wannabe Pat Robertson for US$1.9 billion. In 2001 Saban prompted sale of Fox Family Worldwide to Disney for an estimated US$5.3bn (inc debt). His acquisition and profitable resale in 2005 of dominant German broadcaster ProSiebenSat is noted above.

Studies

There are no major English-language studies of Kirch or Saban. Michael Radtke's prescient Außer Kontrolle - Die Medienmacht des Leo Kirch: Ein Report (Munich: Erpf 1994) is a treat for germanists, albeit quite dated.

For a view of moves into the digital television market see the 1998 paper (PDF) from the Institut d'la Audioviseul et des Telecommunications en Europe.

The regulatory environment in the preceding decade is analysed in Peter Humphreys' Media and Media Policy in Germany: Press & Broadcasting since 1945 (Oxford: Berg 1994) and Pluralism, Politics & the Marketplace: the Regulation of German Broadcasting (London: Routledge 1991) by Vincent Porter & Suzanne Hasselbach.

For F1 see Russell Hotten's Formula 1: The Business of Winning (London: Orion Business 1998).