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overview
holdings
landmarks
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overview
This profile considers the defunct Kirch media group,
with some information about Saban, Formula 1 and EM.TV.
It covers -
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).
 next
page (Kirch holdings)
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