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Germans Making A Public Appearance

A spate of public offerings plotted by several media power houses in Germany could re-cast the business culture, long dominated by entrenched families that have successfully resisted foreign control.

The quasi-aristocratic German business mentality, mortally opposed to debt and pledged to keeping equity discreetly within the family is slowly eroding. With it, the path to public ownership and foreign investment in German media properties is widening.

Selling stakes to the public would entail opening the books and yielding a measure of control to outsiders. At a minimum, it might kindle foreign interest in joint-venturing, provided media owners here are truly serious about unlocking their family empires.

Europe’s largest territory is generally perceived as a sleeping giant quietly controlled by a few private players. Indeed, the last decade’s battle for media ownership here has been more of a family feud than a corporate contest, pitting southerner Leo Kirch against the northerner Reinhard Mohn’s Bertelsmann AG. The big publishing houses are all still attached, like feudal estates, to prominent German families: Holtzbrinck, Bauer, Burda, even the only publicly traded media company in Germany, Axel Springer Verlag.

Strong evidence of change can be seen in the number of key media companies active in Germany that are considering going public.

* A top executive at media conglom Bertelsmann says the company should and will publicly float its BMG Entertainment unit sometime this year. That New York-based division is a distinct product line and could be taken public without putting the whole corporation up for sale.

* Commercial broadcast group Compagnie Luxembourgeoise de Telediffusion (CLT), more than half of whose revenues come from Germany, says it is close to a restructuring that would allow it to be quoted on stock exchanges in Belgium and Luxembourg.

* Analysts say Deutsche Bundespost Telekom, the telecommunications giant now slated for phased privatization beginning next year, is likely to ultimately spin off its cable assets into a publicly held, independent operator. Board members there say it’s too early to discuss it, but won’t rule it out.

* The largest commercial television venture in Dutch history, Holland Media Group (HMG), may consider a partial public offering within three to four years, insiders say, though it is not in the company’s startup business plan. The web unites crossover German- Dutch players Endemol Entertainment and CLT with former pubcaster Veronica and publishing giant VNU.

Unlike nearly all other major territories of Europe, in Germany the very thought of publicly floating media companies is substantially new. In contrast to the publicly funded, debt-driven expansions of News Corp., Time Warner or Viacom, nearly all German media companies are still internally or privately financed.

One reason is that German media companies have typically generated huge revenues and thus haven’t needed to tap the equity markets. Another is the underlying German provincial conviction that while public trust is good, control is better.

As a result, the vast territory of Germany always has been a tantalizingly large market somewhat inscrutable to foreigners , some of whose solo ventures here have been disastrous.

At 80 million strong, Germany’s population consumes entertainment at levels unmatched among Europeans. There are more movie tickets sold (132.8 million last year), more videos rented ($507 million worth) and more U.S. films and TV programs purchased here than anywhere else in Europe. Yet however they’ve profited here, Yanks have always been guests at the German club.

The likelihood of public offerings in the media sector has been hastened to a certain degree by the listing last year of Daimler-Benz on the New York Stock Exchange and the impending mammoth public offering of Deutsche Telekom.

The immediate result of the CLT and BMG offerings, for example, would force analysts and investors to directly scrutinize companies that until now merely elicited their marginal interest. Currently, only a handful of U.S. investment banks track European media stocks and hardly any of their London-based media analysts pay attention to German companies beyond their macroeconomic impact on the industry as a whole.

“But if you even hypothetically had a European media market comprised of BMG and CLT,” said S.G. Warburg’s London-based media analyst Mark Bilby, “it would change my job completely. The epicenter, if you like, would switch to Germany and the Low Countries.”

More important than getting more analysts into more airplanes, though, public ownership would bring a transparency to the German media sector that is long overdue.

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