Kirch Group ’96 losses seen deepening in ’97

BERLIN — The Kirch Group took in DM1.396 billion ($807 million) in 1996, but spent DM1.704 billion ($985 million), German monthly Manager Magazine asserts in its July issue.

The magazine claims to have obtained internal papers documenting the financial situation of the Kirch Group. The media conglomerate’s reported negative cash flow of $471 million in 1996 is expected to sink to $601 million this year. Kirch is said to owe $1.78 billion to German banks, and is currently paying $116 million in interest a year.

The monthly claims that Kirch is using many of his key holdings — including his film library as well as stakes in publishing house Axel Springer Verlag, sports channel DSF and in pay TV channels Premiere, Telecinco and Telepiu — as collateral. The magazine speculates that Kirch may be forced to sell some holdings.

In an interview with the magazine, Kirch managing director Jan Mojto asserted that the media group is “more effective and more profitable than the competition.”

The Kirch Group does not release financial information, and Kirch reps declined to comment on the figures cited by Manager Magazine.

“The date and the content of the article were not chosen by accident, and do not have the aim of providing objective information to the public,” the group said in a statement on Friday.

One of the biggest drains on Kirch’s financial resources is digital pay TV platform DF1, which has attracted only 40,000 subscribers since its launch last summer. According to the monthly, Kirch will have sunk $425 million into the web by the end of 1997, not counting expenditures for programming. Pay TV output deals with the Hollywood majors — estimated to cost over $6 billion — will weigh heavily on Kirch’s purse over the next 10 years.

To help fill the coffers, Kirch is expecting an additional loan of $867 million to come through soon, and son Thomas Kirch is looking forward to collecting around $434 million when commercial web Pro7 goes public this summer.

Yet most observers agree that cooperation between DF1 and pay TV channel Premiere is the best long-term solution to Kirch’s cash problems. Premiere, which began digital pilot projects this year, has 1.5 million analog subscribers, and holds choice pay TV sports rights. German weekly Focus reported on Saturday that Kirch, which has a 25% stake in Premiere, had agreed to take over Canal Plus’ 37.5% share, bringing its total to 62.5%.

But a rep for Bertelsmann, which owns a 37.5% share, said any change in the shareholding structure of Premiere would have to be approved by Bertelsmann. Most believe that Kirch and Bertelsmann will each end up with 50% of Premiere, and will merge DF1 and Premiere. The announcement on Wednesday that Premiere’s Bertelsmann-affiliated managing director Bernd Kundrun will be leaving the web on Aug. 1 was an indication that the two sides may be close to reaching an agreement.

Premiere and DF1 have been in competition with each other over the past year, and have been locked in legal battles over the right to market and carry premium films. By inking deals with 20th Century Fox and DreamWorks this week, Premiere finally secured its first major agreements with Hollywood studios. But Premiere would also like to have access to the pay TV rights of Columbia, Viacom, Warner Bros., Disney and MGM productions — which are held by Kirch.

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