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Europe: KirchMedia Sinks, But Will It Stir Up The Media Sea?

  • Breffni O'Rourke

The collapse of the German-based Kirch media empire has sent reverberations throughout Europe. It is as yet unclear what pattern will emerge from the wreckage -- whether the media scene in Europe will become more fragmented or more consolidated. Several international groups are interested in buying into Kirch's assets. But would this be a good thing?

Prague, 10 April 2002 (RFE/RL) -- What do Formula One car racing, the soccer World Cup, and German Chancellor Gerhard Schroeder have in common?

They are all affected in some way by this week's collapse of the Kirch media empire.

KirchMedia, the core company of the huge enterprise started almost 50 years ago by German entrepreneur Leo Kirch, filed for bankruptcy in a Munich court on 8 April. Altogether, the group's debts total some 6.5 billion euros ($5.7 billion).

The court hearing marks the end of a long road for 75-year-old Leo Kirch, who has been called the last of the high-rolling tycoons who founded their fortunes in the "Wirtschftswunder" era, the name given to Germany's post-World War II decades of phenomenal economic expansion.

The son of a vintner, Kirsch started in business in Bavaria in 1956 when he borrowed money to buy the German rights to Federico Fellini's "La Strada." The film, about poor street actors, was a success, and Kirch was launched into a career that saw him gradually control wide and tangled interests in filmmaking and distribution, press, television -- both free-to-air and pay TV -- and sports organizations.

Kirch holds the broadcasting rights for the German soccer league, the Bundesliga, and his inability to pay fees to the football clubs has already caused a crisis, with smaller clubs fearing bankruptcy. A similar dilemma with the 2002 and 2006 World Cup broadcasting arrangements has been avoided by transferring the rights to a healthy Swiss subsidiary, KirchSport.

The Kirch group also holds the broadcast rights to Formula One car racing and has a controlling stake in the company that organizes F-1 racing.

As for Schroeder, he is affected by the Kirch collapse in that his main rival for the chancellorship in September's elections is the premier of the state of Bavaria, Edmund Stoiber. Stoiber's candidacy has been hit by assertions that he was overly generous in giving loans to Kirch through a bank partly owned by the Bavarian state. The race between the two politicians is close, and Schroeder is glad over any stick with which to beat Stoiber.

Analysts say Kirch ran into trouble because of too-rapid expansion, lack of clear management aims, and disregard for the warning signs as debts built up. The F-1 organization was, for instance, purchased only last year for $1.5 billion.

A senior analyst with the Centre for European Policy Studies in Brussels, Daniel Gross, says the Kirch collapse is a reminder to media about bad management practices.

"It will have a deep impact on the media landscape in Germany, because it makes very clear that they cannot neglect commercial considerations and, in the end, can go bankrupt."

The question is, what now? Leo Kirch has lost the leadership of his group, and it's now up to the creditor banks to decide how -- or whether -- to sell off chunks of the empire to pay for outstanding loans.

A spokesman for the Kirch group, Hartmut Schultz, said in Munich that as yet there is no overview of the way forward. He says that, in accordance with the court order, independent experts are now assessing Kirch's financial situation.

"They [these experts] are now talking to various people and are trying to find a solution for KirchMedia in the next few months, but it's too early to say more on that."

The foreign media magnates Rupert Murdoch and Silvio Berlusconi have been nosing around, probing into the possibility of buying into the television assets in particular. Nothing has yet been finalized.

A senior analyst with the Hans Bedow Institute for Media Research in Hamburg, Hardy Dreir, says a major incursion by foreign media barons into the German scene would set a precedent.

"The German media market has been, up till now, fairly sheltered, apart from ventures with partners in which German media companies have been dominant. An engagement from Murdoch or Berlusconi by means of buying into Kirch media would bring a new situation with it. There would be, for the first time, a non-German competitor with its own complete palette, interestingly positioned on the market."

Schroeder has indicated he does not favor Berlusconi moving into the German media market. He has said nothing against a Murdoch bid. Murdoch's British BSkyB pay-TV enterprise already has a heavy stake in Kirch pay-TV.

Dreir says Berlusconi, who is Italy's prime minister as well as its biggest media owner, would not be particularly welcome in Germany.

"The tradition in Germany is to have a very clear separation of the influence of state and politics. That means that somebody in Germany who occupies a political office cannot at the same time be involved in a media organization. If the leader of a European state were suddenly to become the owner of a media enterprise in Germany, that would bring with it a major legal discussion."

He notes that Murdoch -- a U.S. citizen of Australian origin -- would not have the same conflict-of-interest problem.

Partly due to concerns regarding foreign intrusion, a so-called "German solution" has also been talked about in which Kirch's main creditor banks would ensure that foreign companies are kept out of controlling positions in the German media market. But that also remains theoretical for the moment.

Analysts Gross and Dreir both think the "German solution" would not be a good idea. Gross says it would be "old-fashioned," despite the appeal such a concept still has in more conservative circles. And Dreir says the move toward global media concentration has, in any case, been under way since the 1990s.

"This increasing concentration is a global phenomenon. Europe cannot avoid it or spring over it, by which I mean it cannot be stopped."

The pieces of the jigsaw puzzle are now lying in a heap. They must be reassembled before the shape of the new media landscape in Europe is discernible.