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Germany: The media tells the story
MUNICH, Germany (CNN) -- Few industries in Germany have been hurt more by the struggling economy than the media sector. Thousands of jobs have been shed in the television and new media markets, with advertising dollars evaporating as business confidence and consumer spending declines. And the sensitive subject of how to fix the media sector has become an issue in Sunday's national election. Edmund Stoiber, the conservative opponent of socialist Chancellor Gerhard Schroeder, is closely associated with Leo Kirch, who until this year was one of the most powerful men in corporate Germany.
But Kirch's Munich-based media empire began crumbling in April under a mountain of debt. One by one, parts of the Kirch group that he built up over half a century were declared insolvent and put on the block. Both Stoiber, who as the state premier of Bavaria helped secure financing for Kirch's many acquisitions and expansions, and Schroeder, who has thrown many a lifeline to troubled German companies, turned the fate of the Kirch empire into an political hot potato. However, neither politician has been able to follow through on promises to help the 74-year-old Kirch out of his financial problems. Among the insolvent units to be sold off is KirchMedia. It houses the group's sports and movie TV rights, as well as film and TV production companies. The KirchMedia umbrella also extends to ProSiebenSat.1, Germany's largest and most popular free-to-air television network. KirchMedia owns a 52.5 percent stake in ProSiebenSat.1 and although it is probably the most successful part of the group, valued by Kirch at one billion euros ($964.3 million), it too will have to be sold to bring down the group's debt.
From a field of about 80 bidders, creditors have decided on three finalists -- a consortium of Germany's Commerzbank and Sony's Columbia Tristar, a group headed by media mogul Haim Saban and French broadcaster TF1, as well as a group that includes Lehman Brothers and Saudi investor Prince Al-Waleed. The sale of ProSiebenSat.1 is expected to be announced by late October. Another unit of the Kirch empire is KirchPayTV, which has also gone bankrupt. Its most valuable asset is Premiere TV, Germany's only pay-TV channel. But Priemere has not been able to sign up enough pay-TV customers to justify the huge investment in content, especially sports rights. As a result, Priemere will likely be sold as well -- likely by the end of the year.
Still, in Germany, any change of hands in media interests is fraught with difficulties. The country has very strict laws governing ownership in the sector, which has kept likely suitors -- both in an outside Germany -- at bay. "Leo Kirch is not completely free to just sell this and sell this to whom he wants to sell it, because of the strict rules and so the solution, the final solution of the whole problem is going farther and farther away," says Romy Froehlich, a professor of media studies at Munich University. That has made Germany's media malaise even harder to shake. And while Germany -- like much of Europe -- has suffered from a dearth of advertising revenue following the burst of the high-tech bubble, it has been especially hard on Munich, where start-up companies account for much of the activity in the "Silicon Valley" of Germany. "It is definitely hurting. There is virtually no funding anymore. Most VC companies are struggling with the current investments and trying to save them one way or another. Some are bankrupt themselves," says Matthias Zahn, of TV-Server.de, a start-up that develops television software.
But while some segments of the industry -- like new media and music -- have been suffering, others -- such as the publishing sector -- are showing signs of renewed strength. Media giant Bertelsmann owns the RTL television network and the BMG music group. But its stable also includes publisher Random House, part of the privately held company that is tucked away in Munich. Random House under performed during the hype of the late 1990s but has now turned things around. "I believe we will consolidate our situation and become stronger. I believe music will have to struggle for awhile, television will go up again, but I hope people will remember there is ups and downs in television and we provide stability," says Arnold Kiel, chief executive of Random House Germany. "There is some scope for non-organic growth in Germany because we enjoy less than a 10 percent market share despite the fact of being the biggest player in the market." Consolidation aside, the bigger slices of the media pie will continue to suffer until advertisers come back -- and that isn't expected to happen this year or next. "Maybe some inputs will come from the telcos who then finally have to start to promote their mobile broadband activities. Maybe some Internet companies will restart investments," says Peter Christmann, managing director of SevenOne Media, which sells advertising time. -- CNN's Jim Boulden contributed to this report
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