Germanys Kirch Attracts New Money

Frankfurt, Germany-Amid growing indications that Kirch Pay TV KGaA's digital direct-to-home platform Premiere World will not meet its end-of-year projections, the company has signed on two new investors.

Last week, Kirch Pay TV announced that Kingdom Holdings B.V., owned by Saudi Arabia's Prince al Waleed, and the U.S. firm Capital Research and Management Funds would take small stakes in the company. The two parties will pay a combined DM797 ($350 million) for the equity interest.

That news follows a late August announcement by KirchGroup, Kirch Pay TV's corporate parent, that it sold its 3.1 percent piece of British Sky Broadcasting Group plc (BSkyB). That stake was sold to investment banks Credit Suisse First Boston Europe Ltd. and Goldman Sachs & Co., which paid a total of DM1.8 billion ($789 million).

The sale was part of a deal that gave BSkyB a 24 percent stake in Kirch Pay TV.

Because of the capital infusion from al Waleed and Capital Research, the stakes held by Kirch Pay TV's other owners have changed. KirchGroup remains the largest shareholder with 71.47 percent, followed by BSkyB with 22.57 percent. Al Waleed will hold 3.2 percent and Capital Research 2.76 percent.

Both new pay TV partners already have small stakes in Kirch's commercial TV and TV-production arm, Kirch Media KGaA.

Kirch's investment in Epsilon, a 50-50 partnership with Italy's MediaSet SpA, also altered the equity picture. Epsilon owns 50 percent of Beta Film GmbH-Kirch's cash cow-and 25 percent of a company called PKS GmbH, which holds the German Sat.1 channel.

Now, Kirch is buying back the interest in PKS. In turn, Mediaset Investment will take a 2.48 stake in Kirch Media.

No money changed hands in this transaction, which has been valued at DM395.2 million ($173.3 million). The deal was necessary because Sat.1 is in merging with Kirch's ProSiebenSat.1 Media A.G. unit.

Kirch Pay TV general manager Markus Tellenbach said the wheeling and dealing shows that Germany's pay TV market has reached maturity, because international investors recognize its profit potential. This is important for the company, because observers doubt Premiere World, Kirch's major pay TV asset, will reach its projected revenue targets by year's end.

For the first half of this year, subscribership was flat at 2.2

million; 1.6 million of those were digital subscribers. The lift expected from coverage of Germany's top soccer league at the end of July also was below expectations, sources said.

At year-end, he anticipates 2.9 million Premiere World subscribers.