Published:
08-Jan-08
News Corporation has returned to the German pay TV market, buying Unitymedia's 14.58 per cent share in leading German pay TV operator Premiere for €287m in cash. Via its affiliate News Armenia B.V., the company bought 16.4m shares at €17.50 per share from Swiss Financial group Pictet & Cie, which held the stock on behalf of Unitymedia. This makes News Corp the biggest single investor in Premiere AG. The deal closes the final chapter of a complex relationship between Premiere and Unitymedia: after the German cartel office launched an investigation into the football rights sharing agrement between Unitymedia and Premiere in February 2007, the pay TV operator took back the football rights in an exclusive sub-licensing agreement with Unitymedia. Unitymedia had previously snatched the rights from long-time holder Premiere. In return, Unitymedia received a non-voting stake in Premiere. However, with the rights due to expire after the 2008/09 season, the German cartel office said Unitymedia had to sell its shares by June 2009. News Corp's successful bid came as a surprise: some German sources considered Canal Plus, a founder investor in the original Premiere, the most promising candidate.
Our take...For News Corp, this is its second encounter with Premiere: In 1999, News Corporation-backed BSkyB agreed to buy a 24% share in KirchPayTV, the holding company of Premiere. The Uk company paid £320m in cash plus 78m new BSkyB shares valued at £622. However, the investment turned sour. The German pay TV market did not take off and subscriber growth did not meet BSkyB's expectations. Having written down the entire value of its stake in February 2002, BSkyB saw its stake in KirchPayTV lapse in September when KirchPayTV followed its sister company KirchMedia into insolvency after Kirch had amassed debts of €6.5bn.
News Corp's move to re-enter the German market appears to have two main motives:
- News Corp chairman Rupert Murdoch has always shown a keen interest in the German TV market. Most recently, in 2006, he aimed at buying into ProSiebenSat1, but failed due to major political opposition and regulatory constraints as German politicians feared he would use his media power for political purposes.
- Murdoch approaches Premiere with the same conviction as in 1999: A strong faith in the German Pay TV market. But while the market disappointed his expectations after the 1999 deal, the time seems to be right. Back in August 2001, Kirch told BSkyB that Premiere would still need 18 months to reach profitability. Premiere is now in profit and has reached the critical figure of 4m subscribers.
Through the back door, News Corp has also gained an entry into the German Free TV market. In January 2007, Premiere took over 100% of youth channel Giga.
Murdoch's investment in Premiere is not only a financial commitment but one that will also give him operational influence over the pay TV operator: Premiere currently uses Nagravision's encryption system which could be replaced by News Corporation's Videoguard. Videoguard uses encryption technology that is directly planted into the set-top box while Nagravision uses the open CICAM standard which allows a receiver to use different encryption standards because the encryption system is placed on an interchangeable smart card.
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