Kirch Gets $300M, But New Competitor Looms

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Frankfurt, Germany -- The Kirch Group stands to gain $300
million from a deal signed last week to form a 50-50 joint venture with EM.TV &
Merchandising A.G., a German programming company.

Kirch agreed to supply all its children's and family
shows to the new venture, a programming distributor and merchandising company to be known
as Junior TV. In return, Kirch will receive $300 million from EM.TV.

Kirch definitely needs the money. On the immediate horizon,
it must pay for the second tranche of the 37.5 percent of the Premiere channel bouquet it
bought from France's Canal Plus. That would bring Kirch's stake in Premiere to
62.5 percent.

Kirch's co-shareholder in Premiere, Bertelsmann A.G., has
indicated it may sell off its own 37.5 percent stake in Premiere. However, it is seen as
delaying that move in order to prevent Kirch from taking control. If Kirch were to take
control, it could use Premiere's 1.4 million analog subscribers to jump-start its stalled
DF1 digital direct-to-home platform.

Originally, Kirch was due to have less financial
responsibility for Premiere because it planned to divvy up the Canal Plus stake with
Bertelsmann, making the two companies 50-50 partners. However, the European Commission
rejected that deal in October, and Kirch remains saddled with the full Canal Plus stake.

To make things more difficult for Kirch, German public
broadcaster ARD is also planning to introduce a new digital cable and DTH platform,
according to German sources. A formal announcement of the project could come this week.

Sources said ARD recently formed a group called Free
Universal Network (FUN) to build digital set-top boxes based on the Open TV standard. The
new group includes ARD, an equipment manufacturer called Galaxis and other
"interested individuals," one source said.

One of those individuals is Hermann Tillmann, technical
director of the Bayerische Rundfunk, one of the large broadcast networks within ARD.

"We are in intensive talks," he said last week.

While FUN would probably start with free TV services and
later add pay TV programming, the group is keen on not being identified with the public TV
system too closely.

"They are talking to every potential service
provider," the source said. Up to 10 major companies are expected to be founding
members, especially those that have misgivings about Deutsche Telekom A.G.'s firm
control over Germany's cable access.

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