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Kirch Group’s Empire Continues To Decay

By | May 22, 2002

      In a move that comes as no surprise, troubled German media company Kirch Group has placed its Kirch Pay-TV unit into insolvency. Premiere, Kirch Group’s ill-fated pay-TV broadcaster whose heavy losses are the main reason for the Group’s financial problems, says its existence is not in jeopardy by the parent company’s decision.

      According to Managing Director Georg Kofler, Premiere will continue to broadcast its current range of channels and services without limitation. He stressed that the pay-TV operator will go ahead with its plans for extensive coverage of the forthcoming Football World Cup. Premiere owns the exclusive rights to show all 64 games live in Germany while the public broadcasters ARD and ZDF have only acquired the rights to transmit 24 games. Premiere plans to show the games on up to five channels in parallel with a dedicated World Cup channel screening highlights 24 hours a day.

      In addition to Kirch Pay-TV, other Kirch Group units headed for insolvency include Pay-TV Rechtehandel, its shareholding group Premiere Beteiligung, Kirch Marketing Services and Beta Digital, which is responsible for uplinking Premiere and Kirch’s other channels to the Astra satellite system (19.2 degrees East).

      Kirch explains that the move to declare Kirch Pay-TV insolvent was unavoidable since neither the shareholders nor the banks or new investors were willing to inject more money into the loss-making venture. “During the past weeks we have tried in numerous negotiations to use even the smallest chance for the continuation of the business in its current constellation,” said Kofler. But faced with the enormous debts that have been incurred and the “highly complicated shareholding intertwinements and commitments” potential investors didn’t have the freedom they would have needed. He pointed to the fact that many investors had nevertheless shown great interest in Premiere. “Not only Premiere’s management, but also many negotiating partners from the media and capital market are convinced that subscription-based television is able to be lastingly viable in the German market.”

      Kofler said that the preconditions for Premiere’s recovery would be a substantial reduction of the operating costs, new investments and getting out from under the Kirch Pay-TV problems.

      Kofler explained that the management will now initiate negotiations with Premiere’s business partners in order to reduce costs. With a view to the expensive sports and movie rights deals signed by the pay-TV broadcaster, Kofler said that in the past Premiere has paid prices that were not reasonably proportionate to the achievable turnover. He added the management will present its revised business plan to potential shareholders next month.

      According to industry sources, Premiere needs to gain a new cash injection by the end of June to prevent its collapse. Kofler plans to reduce the yearly operational costs by more than 500 million euros ($461 million). While the renegotiation of the unfavourable terms of its sports and movie rights contracts is one way to achieve this target, Kofler’s strategy also involves far-reaching redundancies. The number of employees will be reduced from 2,400 to 1,800 by the end of June and to 1,400 by the end of the year. Industry sources suggest that the staff could be cut to as low as 1,000. Premiere’s head claims that the recent strategy changes are a crucial factor in turning the pay-TV broadcaster into a financially viable operation. “The d-box monopoly has now ended. The opening of the market for digital set-top-boxes creates a new motivation for manufacturers and dealers. I am convinced that digital television will surpass the doorstep to the mass market within the coming two years,” Kofler said. — Jorn Krieger

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