Kirch-Mediaset Alliance Talks Advance

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Milan, Italy -- An alliance between European TV powers The
Kirch Group of Germany and Mediaset of Italy appeared more likely last week, after parties
from both companies acknowledged that negotiations were moving ahead.

At a conference in Monte Carlo, Monaco, last week,
representatives from Kirch and Mediaset said they were still discussing new ways to work
together. Saudi Prince Al Waleed is also seen as an ally. Mediaset and Al Waleed are
believed to be close to buying into Kirch's TV holdings.

Less certain is the position of Rupert Murdoch, who has
been prowling Europe and looking for new investments to make through News Corp.'s 40
percent-owned British Sky Broadcasting, and who is seen as a potential new investor in
Kirch.

Speaking at the annual convention of Mediaset-owned
advertising-sales house Publitalia Sept. 21, Mediaset managing director Maurizio Carlotti
said an alliance between his company and Kirch was definite, but Sky's involvement
was still unclear.

On a broader scale, Carlotti supported a proposal made by
the leader of Italian public broadcaster RAI to work toward a larger European alliance.
One week earlier, Roberto Zaccaria, president of RAI, called for a parallel alliance
between Europe's public broadcasters and commercial TV companies.

"With generalist terrestrial services likely to lose
audience to digital pay TV and the Internet, it will become more important for alliances
to share and reduce costs of program production and acquisition," Carlotti said last
week.

Two weeks ago, there was a series of rumors indicating that
Sky would take a 40 percent stake in Italian multichannel-TV platform Stream, which is
operated by Telecom Italia. Press reports, denied by Stream, claimed that a provisional
agreement had been signed with an option for Murdoch's group to take up to 40
percent, in return for a massive investment to secure pay TV rights for the Italian soccer
league. Last week, the Italian papers reported that the deal was off.

However, RAI is reported to have dropped its opposition to
Sky taking a significant stake in Stream, which is emerging as Italy's second
digital-television provider, competing with Canal Plus-owned Telepiú, a direct-to-home
service.

In return for a 40 percent stake in Stream, Murdoch is
reportedly offering to invest as much as $2.5 billion to secure pay TV rights to all
Italian soccer league matches for a six-year period, from 1999 to 2005. Earlier this
month, Telepiú signed a deal with four major Italian soccer clubs -- Juventus, AC Milan,
Inter Milan and Napoli -- for exclusive pay TV rights over the same period for $1.21
billion.

The Telepiú deal has been challenged by Italy's Lega
Calcio (Soccer League) and by Telemontecarlo channel owner Vittorio Cecchi Gori. They have
called for an investigation by the country's antitrust authority.

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