Czech Dilemma Is Weighing on CME

Author:
Updated:
Original:

London -- It may take high-level diplomatic
intervention to save Central European Media Enterprises Ltd. (CME), the would-be European
TV conglomerate, from collapse.

CME's current problems could also threaten SBS Broadcasting
S.A.'s planned acquisition of the company, which owns eight broadcast-TV stations in six
markets across Central and Eastern Europe, many of which are distributed on cable.

CME's troubles stem from a bitter and complex dispute over
the company's Czech station, TV Nova.

The station was established with local investor Vladimir
Zelezny, a Czech citizen who held the station's license in accordance with Czech Radio
& Television Council requirements.

Last April, CME fired Zelezny, alleging that he transferred
TV Nova's acquired programming rights to his own company, CET 21. The Czech broadcasting
license is also held through CET21, which has since used it to air its own broadcasts.

Since then, the arguments between CME and Zelezny have
become increasingly acrimonious, with both sides firing salvos and writs at one another.
Cosmetics heir Ronald Lauder, a major CME investor, is seeking redress against the Czech
government under a 1991 Bilateral Investment Treaty signed by former U.S. President Bush
and Vaclav Havel, president of what was then Czechoslovakia. He alleges that the Czech
Republic government reneged on the terms of the treaty.

SBS is in the process of acquiring CME for $650 million.
SBS president Martin Lindskog two weeks ago said the original terms for the CME
acquisition had become unrealistic.

"We can go ahead, walk away for a break-up fee, or we
can renegotiate," said Lindskog.

SBS would have to pay a $15 million breakup fee to CME if
it walks away from the agreement.

CME's Czech subsidiary has laid off 215 employees and
suspended all operations. In a statement, CME CEO Fred Klinkhammer said he expects
"that the international arbitration will ultimately uphold the legitimate
claims" of CME and its associates. But he also warned that the dispute will continue
to weigh on the company's finances.

TV Nova's $108.8 million in advertising revenue last year
represented the bulk of CME's cash flow. In his statement, Klinkhammer warned that without
further sources of income, CME may not be able to meet its operating, capital and
debt-service requirements over the next year.

CME's total portfolio includes eight stations across six
European markets.

Meanwhile the "new" TV Nova continues its
broadcasts. According to Trish Bull, Czech media director at advertising agency
McCann-Erickson, the new, Zelezny-run TV Nova airs programming that targets a younger
demographic, reversing previous audience losses.

Related