Convergence hits European TV markets

Broadcasters in play throughout continent

Consolidation is the name of the game in Europe, most notably in the two biggest TV markets — the U.K. and Germany.

Key players such as behemoth RTL are eyeing opportunities. In the U.K., the booming indie sector continues to consolidate, and speculation persists regarding the future ownership of the country’s largest private terrestrial web, ITV, despite two recent failed bids.

Last spring, ITV, hit by falling revenues, saw a bid led by Goldman Sachs, but in the fall Nasdaq-listed cable group NTL announced its own interest.

Europe’s biggest paybox, the Rupert Murdoch-controlled BSkyB, effectively blocked the approach by NTL (rebranded Virgin Media in February) by shelling out $2 billion to grab an 18% stake in ITV in November.

Virgin has persuaded Blighty’s media regulator, Ofcom, to examine BSkyB’s move, which made it ITV’s biggest single stockholder, but “everyone expects this deal to go through,” opines Mathew Horsman, co-founder of U.K. media consultancy Mediatique.

“There is nothing in the legislation that prevents it,” Horsman says. “NTL’s would-be deal would never have worked. There were no synergies.”

With no BSkyB rep on ITV’s board and such sensitivities in the U.K. over Murdoch becoming an even bigger player in British media, both parties have ruled out any collaboration. But old hands still think it possible Sky and ITV will collaborate on a sports or talent deal before too long.

“It’s absolutely inevitable in the next 18 months there will either be a sports rights issue, a program issue or a talent issue where they will both be after the same thing,” observes an industry veteran.

Another possibility is that in the long run, BSkyB might trade its stake in ITV with RTL for Five, the flagging U.K. terrestrial web RTL owns outright.

RTL likes to be first or second in its various European markets — and Five is ranked fifth.

“If you were an economist from Mars, you’d say that Sky should buy Five and RTL should buy ITV,” Horsman reckons.

Meanwhile, more U.K. “super indies” are emerging with their eyes increasingly fixed on international horizons. Shine, operated by Elisabeth Murdoch, is the latest British indie to bulk up.

In December, Shine bought the drama specialist Kudos plus Princess and Firefly for £65 million ($125 million). Part-owned by Sony, Shine hopes it can use its U.S. connections to win commissions for Kudos, creators of high-concept police drama “Life on Mars,” across the Atlantic.

One of Blighty’s biggest indies, the ambitious All3Media, owner of nine production houses, recently snapped up German producer MME Moviement.

In Germany itself, strong ad sales boosted revenues and profits at the country’s big commercial broadcasters, RTL Television and ProSiebenSat 1. Both companies appear eager to expand operations in foreign markets as well as in growing digital sectors.

The recent acquisition of ProSiebenSat 1 by private equity groups Permira and Kohlberg Kravis Rob- erts has given that station group the opportunity to expand for the first time beyond the country’s borders.

Permira and KKR plan to merge Pro-SiebenSat 1 with pan-Euro broadcaster SBS, which they also own, to create one of the largest TV empires in Europe, challenging the RTL Group.

A ProSiebenSat 1/SBS group could benefit greatly from programming synergy, such as the acquisition of easily adaptable formats.

Indeed, content is playing a vital role in the continental TV activities of ProSiebenSat 1 shareholder Permira, which took a majority stake in All3Media last year.

ProSiebenSat 1 also has shored up its new media and digital expansion with recent acquisitions such as video-on-demand service Maxdome, YouTube clone MyVideo and a 75% stake in price search engine

Marcus Englert, ProSiebenSat 1’s head of diversification, says the company is looking to increase its share of non-TV ad revenue from 11% to 15% by the end of the year, and that means further acquisitions.

Meanwhile, Telefonica has put Dutch entertainment giant Endemol (“Big Brother,” “Deal or No Deal”) on the market, with a pricetag of up to $3.5 billion. Endemol co-founder John de Mol is mulling a bid in tandem with Italy’s Mediaset, as apparently is Spanish broadcaster Telecinco. ITV could be interested; RTL has publicly ruled itself out.

Meza reported from Berlin; Clarke reported from London.

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