European Alliance Moves Step Closer

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MILAN, ITALY -- A series of deals tidying up the existing
television holdings of Silvio Berlusconi's Fininvest media conglomerate, including
its joint holdings with Germany's Kirch Group, are being interpreted as a prelude to
the formation of a major Europe-wide TV alliance among media magnates Leo Kirch,
Berlusconi and Rupert Murdoch.

Last week, Berlusconi confirmed the sale of
Fininvest's 33.5-percent stake in the money-losing German pay sports network DSF to
Kirch for $103 million. That deal came two days after Fininvest's managing director,
Ubaldo Livolsi, confirmed broader negotiations among Kirch, Fininvest and News Corp.

"We are working on the hypothesis of an
alliance," Livolsi said, "But, if it is going to work well, we need to allow
sufficient time."

The German newsweekly Der Spiegel last week
speculated that Kirch is seeking to relinquish a 20-percent stake in its media empire for
an estimated $1.5 billion. The move would be made to cut Kirch's tremendous debt.

Fininvest and News Corp. are seen as the most likely
bidders for a stake in Kirch, as are France's Bouygues Group, which controls TV
company TF1, and the Saudi investor Al Waleed. Together, all of the parties are said to be
discussing the formation of a Europe-wide TV alliance, and the possibility of starting a
new European "superleague" of soccer.

Sources said that representatives of Kirch, Fininvest, News
Corp. and Al Waleed have met several times over the past month in Munich, and that they
met again last week in Milan. Sources said that TF1 has also been invited to join the
discussions.

In the past, similar negotiations have led to signed
alliances among several major European parties, but the alliances always fell apart.

This time around, many of Europe's leading players are
feeling more pressure to form an alliance, as factors such as the high cost of digital are
persuading them to cooperate rather than compete. Kirch is dealing with heavy debt,
Berlusconi with his vast legal troubles, and Murdoch with his frustration over being
virtually locked out of TV in continental Europe.

While Berlusconi steps up his deal-making moves across the
continent, he is also busy fending off investigations on several fronts.

Last week, news emerged that a complicated web of offshore
holding companies and loans, involving the transfer of assets between Fininvest and Kirch,
are at the center of an investigation by Spanish magistrate Balthazar Garzon. He is
examining Fininvest's alleged infractions of Spain's media antitrust laws that
restrict ownership in broadcast TV networks to a maximum of 25 percent. Garzon charges
that Fininvest financed holdings in Telecinco by other partners, including Kirch, and
effectively controlled their holdings.

Garzon's investigation in Spain parallels those in
Italy, in which Berlusconi is alleged to have broken Italian antitrust laws by effectively
controlling Telepiu in the early 1990s through financing other partners', including
Kirch's, shares.

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