Kirch is founder of Kirch Group, the German media company that owns the broadcast rights to the soccer World Cup, the Formula 1 motorsports tournament and a vast Hollywood movie library. It also holds a 40% stake in Axel Springer, Germany's largest publisher. Last week, he held a summit to try to rescue his company, or at the very least keep it out of Murdoch's clutches. The story says much about the late-`90s' blind rush for content, and the dangers of losing sight of a key new-technology axiom: Just because consumers can doesn't mean they will.
On paper, Kirch Group owns two of the prize jewels in sports rights. World Cup soccer and Formula 1 racing are arguably the two most global sports, huge everywhere outside the U.S. Now the intrinsic value of such rights is being questioned.
Kirch is staggering under an astonishing $8 billion to $12 billion in debt. Even creditors struggle to put an exact figure on the total. But, with its Premier pay-TV arm losing up to $1.5 million a day, it cannot go on as it is.
Premier must pay for $3 billion in movie and other programming deals over the next four years, and find an additional $500 million for the German soccer league alone by 2004. Investors now regard Premier as a financial black-hole. In 2000, Kirch pay-TV spent almost $650 million just on programming-against total revenues of $700 million.
Murdoch's BSkyB has a 22% stake in Premiere worth $1.5 billion. Having been stung earlier in February for an extra $800 million on his troubled investment in an Italian pay-TV business, Stream, Murdoch cannot carry Premiere. BSkyB invoked a "put" option in its contract to demand that Kirch Group buy back BSkyB's stake in Premiere this October.
But where will Premiere get the money? It is burning through a $700 million overdraft from a German bank. There are only 2.4 million subscribers (against a business plan calling for 4 million). Germany has 35 free-to-air channels. Murdoch's BSkyB competes with just five in the U.K.
Kirch Group may now sell its Formula 1 stake for a knockdown $1 billion, and it has been offered more than $1 billion for its Axel Springer stake, which includes Germany's largest tabloid newspaper, Bild. Bankers may offer more control of Kirch to Murdoch-a prospect Leo Kirch abhors.
The "shark" remark is a thinly disguised appeal to the German government to protect German media interests from outside influence. Politicians have talked of finding a "German solution." German banks may yet come through with further loans.
But the Kirch debacle has wider implications. It calls to question just how large the pay-TV audience is for even the most blue chip of sports and movies. For organizations from FIFA (the world soccer body) to the National Basketball Association, the gravy train may be about to come to a stop.
Stefano Hatfield is editorial director of Ad Age Global and Creativity.