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RTL, Desmond agree Five sale

U.K. channel sold for $161 million

BERLIN — Pan-European broadcaster RTL Group has sold its struggling U.K. channel Five to British media baron Richard Desmond for E125 million ($161 million) — a fraction of the price the Bertelsmann unit paid for the country’s smallest free-to-air channel five years ago.

But Desmond, who owns British mass-market dailies the Daily Express and Daily Star as well as celebrity magazines and pornographic TV channels, could attract regulatory scrutiny in Britain.

Gerhard Zeiler, chief exec of RTL, said: “With a significant recovery of the U.K. TV advertising market and Five performing well in the first half of 2010, we saw a window of opportunity to realize a transaction based on a fair evaluation of Five.

“The disposal is in line with RTL Group’s strategy of being number one or two in each of our markets.”

RTL paid $450 million for a 35% stake in Five. But the TV ad market has slumped and Five’s share has tumbled along with it.

But if Desmond’s bid fails, rival Channel 4 could be prepared to acquire Five — at a far lower price. Channel 4’s interest is motivated by the fact that it wants to keep Five out of the hands of competitors BSkyB and ITV, who were also believed to be in the running.

For RTL, which recorded losses of $53 million last year, Desmond’s attraction is that he can move fast.

As the owner of a portfolio of adult TV webs plus best-selling celeb mag OK!, along with national newspapers the Daily Express and Daily Star, Desmond has a reported £1 billion ($1.52 billion) to burn.

The Daily Star, a sex and celeb-packed tabloid, is one of the few British papers to show consistent sales increases.

Earlier this year, Zeiler made a new approach to Channel 4 regarding potential partnerships with Five, which reported a 2009 loss of £36.7 million ($55 million). Five is an entertainment-led commercial web while Channel 4, owned by the state, is a pubcaster funded by advertising. However, under pressure from the U.K. government, the pair were encouraged to discuss a partnership around two years ago.

Last year Thomas Rabe, the chief financial officer of Bertelsmann, majority owner of RTL, said Five’s current business model was “not sustainable.”

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