Kirch, Berlusconi Create Euro-Wide Alliance

Author:
Publish date:

Frankfurt, Germany -- Germany's The Kirch Group and
Italian media magnate Silvio Berlusconi's Mediaset aim to become a powerful force in
Europe's developing panregional television market through the Eureka alliance that
they unveiled last week.

At the same time, Kirch moved one step closer to becoming
Germany's dominant TV company: Sources said Kirch was expected to sign a final
agreement with CLT-Ufa late last week to take control of German pay TV network Premiere.

Under that deal, CLT-Ufa was expected to sell its 32.5
percent stake in Premiere to Kirch for an estimated $674 million to $899 million.

Kirch and Fininvest will each own 50 percent of Eureka, the
working name of the alliance.

Kirch will contribute BetaFilm, the biggest TV-rights
broker outside of the United States; a 28.9 percent stake in its German TV network, Sat.1;
and its 25 percent interest in Spanish broadcaster Telecinco Gestevisión S.A.

Mediaset will contribute its European ad-sales companies,
Publieurope International and Publieuros. One of Berlusconi's three Italian
commercial-TV networks will likely be added to the alliance at a later date.

Eureka aims to become a dominant player in European
television, and it could attract new partners. By pooling their assets, the backers will
have increased leverage in areas such as program acquisition, production and advertising
sales.

Already, plans call for coproducing up to 15 feature films
with Hollywood studios over the next few years. At the same time, early conversations have
taken place with French broadcaster M6 and pay TV company Canal Plus S.A., as well as with
other unnamed companies, to cooperate with Eureka.

"Already, the markets that we are in [Germany, Italy
and Spain] represent 80 percent of European advertising revenues," Kirch vice
chairman Dieter Hahn said. The talks with Canal Plus could indicate that the alliance
hopes to expand its reach into pay TV, although Hahn declined to comment on that topic.

"Maybe in the future, it will be possible to cooperate
in the fields of coproduction and distribution," Canal Plus vice chairman Marc-André
Feffer said.

Eureka's partners said they hope to see the group
become operational by July, barring any slowdowns from European antitrust regulators.

Because Kirch is contributing a much larger pile of assets
to Eureka, Fininvest will pay Kirch $213 million to balance the partnership.

At the same time, Fininvest and Saudi Prince Al Waleed have
agreed to pay Kirch about $210 million each for 3.19 percent stakes in Kirch Media KGaA, a
holding company for Kirch's non-pay TV assets.

That cash will be important to Kirch as it moves to acquire
CLT-Ufa's stake in Premiere, which Kirch already owns 25 percent of. Kirch also has a
further 18.75 percent of Premiere held in trust status.

Sources said Kirch plans to move most of Premiere's
infrastructure from Hamburg to Munich, and to merge the network with its
345,000-subscriber DF1 digital direct-to-home platform.

Premiere has 1.7 million subscribers, and it will further
Kirch's dominance in the German TV market.

At the same time, shedding its stake in Premiere will
enable CLT-Ufa to concentrate on its free TV businesses, said CLT-Ufa shareholder
Bertelsmann A.G. of Germany. However, Gerhard Zeiler, chairman of RTL, CLT-Ufa's
major commercial network, has reportedly said that the unit wants to move into pay TV
programming. Observers said this would be difficult, mainly due to Kirch's growing
strength.

Related