Studios re-write Premiere deal

BERLIN — Fox and DreamWorks have renegotiated content deals with ailing Kirch pay TV web Premiere as it slashes program purchasing costs to avoid collapse.

The pair are the only U.S. studios that had output deals directly with the digital channel, whose billions in debt bankrupted its once mighty Teutonic parent.

Premiere accessed content from the other majors through the now insolvent Kirch Media, which defaulted on a multimillion-dollar payment to Columbia Pictures in March and is in legal disputes with Universal and Paramount over similar output deals gone sour.

The renegotiated deal means Fox and DreamWorks are the only U.S. studios with a pay TV presence in Germany as well as the only studios expected to receive revenues from the region now that Kirch has gone belly up, according to DreamWorks TV topper Hal Richardson.

Premiere inked deals with DreamWorks and Fox nearly five years ago, as part of a 10-year pact that called for the feevee to pay a license fee for films based on a projected number of subscribers. It failed to attract subs, however, making the venture costly.

The renegotiated deal now calls for Premiere to pay DreamWorks and Fox a licensing fee based on its actual sub count — estimated to be 2.5 million by year’s end.

Specific license figures were not revealed. But it’s almost certain that the two Hollywood studios in question will pocket much less over the next five years than they did in the first five.

Premiere CEO Georg Kofler said Thursday he was looking for savings in purchasing film rights of “significantly over 50%” as part of plans to turn around the operation by 2004.

Premiere cut its losses by 37% to €264 million ($264.2 million) in the first half of 2002. Company saw revenues rise 2% to $373.3 million in the first six months of the year.

“We have made great progress and that is reflected in the numbers,” said Kofler.

Despite the significant losses, Kofler said his cost-cutting plan had passed targets. Company is expecting to further reduce losses to $120 million in the second half on projected revenues of $380 million.

“Premiere has proved itself to be extraordinarily stable in a difficult environment,” Kofler said.

The radical restructuring includes cutting its workforce from 2,400 to 1,400 and renegotiating contracts with distribution and service-related partners. Some half a billion dollars in debts have been forgiven due to the insolvency of parent company Kirch Pay TV in May.

Premiere attracted 175,000 new subs in the first half of the year, and the cancellation rate fell from 23% to 17%. It has slashed prices to win more subs and hopes to reach the magic 3 million — and break even — in 2004.

Reacting to reports that creditor banks BayernLB and HypoVereinsbank were on the verge of taking control of Premiere, Kofler said there were various models on the table, adding that a new business structure would be formed later in the year.

Premiere will hold talks with investors in August. Kofler said Premiere needs a further $250 million, including a recent $100 million emergency credit line, to reach break-even. He estimates that Premiere’s value could hit $2 billion-$3 billion once it starts turning a profit.

(Marc Graser in Los Angeles and Reuters contributed to this report.)

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