Berlusconi's TV Empire: Italy, Spain ... Germany?

Among many other names, Italian broadcaster-turned-Prime Minister, Silvio Berlusconi, is called Napoleon because, like the French leader, he can turn any criticism into a public relations coup. Like the former Italian, Napoleone Bonaparte (who was originally from Tuscany), Berlusconi wanted to create a Pan-European Empire. During a conference in 1986, Berlusconi boasted that he was present in France, Spain, Portugal, Sweden, Holland, Belgium, Germany, Greece and, of course, Italy. His ventures include La Cinq (France), Channel 5 (U.K.), TeleFunf (Germany), Tele-Cinco (Spain) and Mediaset (Italy).

Lately, considering that Berlusconi is taking special care of Russia with repeated visits to its president, Vladimir Putin, there is speculation that Mediaset will be entering the Russian TV market. Berlusconi has already made statements about exchanging TV programs promoting each country's cultural landmarks.

Berlusconi, who now controls TV networks in Spain (TeleCinco), Italy (RAI and Mediaset) and, possibly, Germany (KirchMedia), is also called His Emittency, Jesus and the Divine Knight. It is important to point out, however, that it is one thing to have ownership, another to actually "control" all those TV outlets, since, at times, the most aggressive criticism of Berlusconi comes from his TV networks. The "Jesus" moniker was given by Italian political satirists who joked about Mediaset's chairman, Fedele Confalonieri, being on the prowl to find the best burial site for Berlusconi. Jerusalem, his top choice, was vetoed by Berlusconi once he heard the high cost for what he thought was going to be only a three-night stay.

However, Berlusconi's imperialistic ambitions have to square off with those of another conqueror: Rupert Murdoch. By threatening to sell Mediaset to Murdoch, Berlusconi effectively scared off left-of-center politicians every time they brought up divestiture of his three commercial TV networks to solve a possible conflict of interest.

Recently, Berlusconi and Murdoch met repeatedly to discuss the KirchMedia case in the hopes of controlling the world's second-largest advertising market through what is now Germany's second-largest media group, with 11,000 workers divided among Munich, Hamburg and Berlin. Berlusconi and Murdoch now own 4.76 percent and 2.48 percent of KitchMedia respectively.

Leo Kirch's problems began December 11, 2001, when Dresdner Bank, one of the 10 creditor banks to his companies, started a downward spiral by demanding repayment of a $400 million loan. This culminated April 8 with KirchMedia filing for insolvency, giving the division a two month grace period to restructure. Kitch's whole group is 6.585 billion euro in debt and has 5.367 billion euro in contingent liabilities. More than 200 corporate entities are part of the Kirch web and most of the debt is in short-term loans.

Murdoch's German adventure includes Premiere, Vox and TM3. As Murdoch is a U.S./Australian citizen, he doesn't have reciprocity in broadcast control ownership with Germany. Murdoch has a 22 percent share in the German pay-TV channel, Premiere, but has the right to sell back to Kirch as a put option at the purchase price of 1.7 billion euro plus interest this October. The put option is a full refund guarantee from Kirch's Taurus Holding. Publicly, Murdoch is said not to be interested in controlling Premiere, since it lost 818 million euro in 2001, bringing the total losses since its start in 1999 to 3.2 billion euro. Today, according to investment bank WestLB Panmure, Premiere is losing about 1.44 million euro a day.

Berlusconi's loss in KirchMedia is, so far, 349.9 million euro (of which 171.9 million euro is from Mediaset and 178 million euro from Fininvest). It could cost him an additional 200 million euro to save it if the other creditors agree to cede 60 percent of KirchMedia to him and Murdoch, with the balance of the 800 million euro necessary to heal it coming from the creditor banks in the form of converting loans into long-term debt.

The German market is not only being eyed by Berlusconi, but by Telecom, Italy's phone company, which is looking into companies such as Mobilcom, Viag, E-Plus and Quam. Also, Generali, the Italian life insurer, wants to increase its stake in Commerzbank, Germany's third-largest listed bank and one of KirchMedia's major creditors.

Leo Kirch started his business at the age of 28, in 1955, in his native Bavaria, with the equivalent of $12,000 (24,000DM), a loan from his wife to buy an Italian movie from film director Federico Fellini. His Italian connection continued with Berlusconi's partnership in many ventures, including Mediaset, TeleCinco, TelePiu (now part of Canal Plus), TleFunf and others.

However, German chancellor Gerhard Schroeder doesn't like the idea that the "Prime Minister of a country would, through his private companies, influence the media industry in Germany." Similar negative comments came from Norbet Schneider, head of the German Communication Authority, and from newspapers like Sueddeutsche Zeitung, which compared Berlusconi to the plague.

Naturally, the Germans don't like to see "predators" of the caliber of Murdoch and Liberty Media's John Malone circling their media markets, either. Last February, Germany's cartel office blocked Malone from buying a chunk of Deutsche Telekom's cable-TV system.

In the past, Kirch was criticized by most of the press for his right-wing views. Today, however, with the specter of Murdoch, even left-leaning newspapers like Frankfurter Rundschau write fondly, noting that Kirch "is a profoundly religious man."

Executives at ZDF and ARD are also coming to his defense. Kirch himself is now becoming available for interviews (in 47 years he's given only a dozen). Kirch is not against Berlusconi, only Murdoch ("he's a shark," he's been quoted as saying in Der Spiegel). Reportedly, Schroeder has asked German media executives to prevent Murdoch from gaining control of Kirch's assets. Plus, it is said that the German establishment (a.k.a. Deutschland AG) favors a "German solution" with a possible group of banks willing to help Springer or the WAZ Gruppe rake over. Bertelsmann, which controls 30 percent of the German TV market with RTL, is legally out of the race. This is the type of Rhinen capitalism that German banks inherited from the Prussian system. However, a "German solution" is rendered difficult by the poor financial health of media companies such as Constantin Film, which in 2001 lost 9 million euro; Splendid, with losses of 2.25 million euro; Senator, with 3.33 million euro in losses; Kinowelf with 600 million eu ro in short-term debt and International Media, with 9.36 million euro in the red. Plus, financially strapped and in need of cash, Alex Springer is looking for 767 million euro for its put option of 11.5 percent of ProSieben-Sat 1 from a destitute KitchMedia.

Kirch has the rights for Bundesliga (the country's 36 professional clubs) until 2006, as well as the 2002 and 2006 World Soccer Championships, which cost him a total of 1.53 billion euro (375 million euro per year). Germany's central government, with some Landers, is ready to inject 200 million euro to save the Bundesliga, plus ARD and ZDF are willing to buy the rights at a much lower price than what Kirch paid.

The KirchMedia debacle has now become a major political ping-pong match. Kirch is a friend of Bavaria's conservative Prime Minister Edmund Stoiber (leader of the Christian Social Union or CSU), who is challenging Chancellor Schroeder in an election on September 22.

Leo Kirch's investment in local and national politics started early and included secret financial support to then German Chancellor Helmut Kohl and, before that, Franz-Josef Strauss, leader of the CSU. So much political closeness makes it no wonder that Kirch's biggest creditor is Bayerische Landesbank, which is half-owned by the state of Bavaria, and which provided Kirch a loa n of 1.9 billion euro. As collateral, Bayerische got the rights for Formula 1 and Kirch's audiovisual library of 50,000 hours. Among other creditors, Dresdner Bank got 25 percent of TeleCinco and Deutsche Bank got 40 percent of Springer (now worth 880 million euro). However, because of cross-collateralization, Commerzbank's Wolfgang Hartman has said that, if Dresdner thinks it has legal rights on TeleCinco, it "doesn't have them." Same thing for Springer, pegged to both Bayerische and Deutsche Bank. Plus, Kirch's programs' rights were given as security to Bayerische, Commerzbank and HVB Group.

RELATED ARTICLE: Kirch Data

KirchMeida is controlled by Tarus Holding (72.62 percent) which, in turn, is controlled by founder Leo Kirch.

KirchMedia is a rights trading unit. Tarus Holding owns 70 perecnt of Premiere Medien (which, in turn, owns 100 percent of Premiere Pay-TV) and 40 percent of Alex Springer. KirchBeteilingung is the vehicle that owns most of Kirch's financial and strategic holdings.

KirchMieda has a 52 percent controlling stake in ProSieben SAT 1, which owns SAT 1, a loss-making TV channel, and TV network ProSieben. SAT 1 merged with ProSieben in 2000 and is listed on the stock market.

Key shareholders of KirchMeida:

Tarus Holding 72.62 percent (Kirch Gruppe-Leo Kirch) Thomas Kirch 6.54 percent Rewe 5.71 percent (German retailer) Capital Research 2.93 percent Kingdom Holding 2.48 percent (Al Waleed) Lehman Bros. 2.48 percent News Corp. 2.48 percent (Murdoch) Fininvest 2.48 percent Mediaset 2.28 percent

Kirch Key Creditors:

Bayerische landesbank 1.9 billion euro

Deutsche Bank 700 million euro

Dresdner Bank 460 million euro

Hypo Vereins Bank (HVB Group) 460 million euro

DZ Bank 400 million euro

Commerzbank 350 million euro

JP Morgan Chase 300 million euro

Lehman Brothers 250 million euro

Other banks 1.765 billion euro.

Hollywood studios is owned 2.9 billion euro (over four years)

Alex Springer is looking for 767 million euro for its put option of 11.5 percent of ProSiebenSat 1.

BskyB is looking for 1.7 billion euro for its put option of 22 percent of Premiere