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Friday, 6 April, 2001, 11:05 GMT 12:05 UK
New force in F1
Michael Schumacher drives Formula 1 Ferrari
Car makers are threatening to set up own F1 circuit
In Germany, Kirch Gruppe is notorious for its tough tactics on the media market. Now it is at the centre of a controversy over television rights for Formula One motor racing. BBC News Online's Mike Verdin investigates.

The knotted tangle of cross-ownerships and joint ventures that characterises Germany's media sector is planted on unexpected roots.

Sector leader Bertelsmann traces its history back more than 150 years to a publisher of protestant hymn books.

La Strada poster
La Strada: the film through which Dr Kirch grew his business
And rival Kirch Gruppe owes its existence to a 1954 Italian film about a circus performer who earned a living by expanding his lungs to break girdles of chains.

It was through selling rights to this film, the internationally acclaimed La Strada, that Leo Kirch built an empire encompassing digital television, software development and, since February, the Muppets.

And like La Strada's strongman anti-hero, Zampano, Dr Kirch has needed to overcome a few trials to do it.

Pioneer

His response to his failure in 1958 to find a German cinema distributor for another Italian art-house film, Friends for Life, was to sell the rights to a television broadcaster.

Dr Leo Kirch
Leo Kirch: mould breaker
"Films that are shown in cinemas have no business being on television", a film magazine said at the time.

But the market has provided business aplenty, as Dr Kirch has proved to huge financial advantage.

The following year he set up Beta Film to market his growing library - the business is now the largest international film and TV series licensing firm outside the United States.

And in 1963 Dr Kirch launched Taurus Film, and accelerated a programme of acquisitions which by 1999 saw his Kirch Gruppe empire own German-language rights to 70% of Hollywood movies.

Foreign ambitions

Not that the group is of interest just to German-speaking regions.

Tendrils from the tangle of enterprises that Dr Kirch, the son of a vine grower, has nurtured are straying increasingly onto foreign turf, in fields of both broadcasting and licensing.

In 1984 Kirch Gruppe launched Teleclub in Switzerland.

Nine years later the company, having expanded into the German market, purchased 25% of Spain's Telecinco. An alliance with Italian media magnate Silvio Berlusconi followed in 1999.

For nine months, the firm's television subsidiary, KirchPayTV, also owned 4.3% of UK-based BSkyB.

But the shares were sold last August to help fund the development of Kirch's PayTV expansion into digital television.

Indeed, the sale was symptomatic of the fact that a 44-year-old group was suffering something of a mid-life crisis.

Disappointment

The pay-TV division, lumbered with a middle aged spread of debts incurred in launching operations, needed viewers, in numbers, to justify its investment.

Kirch Gruppe - timeline
1956: Leo Kirch buys first film rights
1980s: Enters pay-TV and cable markets
1991: With Bertelsmann, starts Premiere pay-TV
1996: Buys World Cup broadcasting rights.
Forms Digital DF1 channel.
1997: Group said to be near bankruptcy
1999: Group restructured.
DF1 and Premiere merged
2001: Buys into Formula 1 for $1.5bn
Yet in the firm's home market Germany, which is Europe's largest, Kirch channels have undershot targets considerably.

Documents leaked to German media in 1997 suggested Kirch was on the brink of bankruptcy.

While Kirch Gruppe, eventually, succeeded in merging its two German pay-TV operations in an effort to stem losses, the new channel, Premiere World, continued to lose money.

And even where earnings have been less elusive, fortune has not been on Kirch Gruppe's side.

In the face of collapsing stock markets, the firm has postponed flotation of its Kirch Media production and TV programme trading arm, a move which would have eased the debt burden.

The firm is also in political hot water. Dr Kirch, a staunch conservative, has large holdings in terrestrial television channels in Germany, and owns a large chunk of Springer Verlagsgruppe, one of the country's largest newspaper and book publishers.

There have been allegations that Dr Kirch tried to influence journalists working for these ventures to reflect his political leanings.

Cash cow

Not that such events should suggest that the company, which has now launched onto the motor racing circuit, is in any way back-of-the-grid.

The Muppets' Kermit the Frog
EM.TV owns the firm which created the Muppets
Certainly the firm was forced to dig into valuable reserves to stump up $550m in February's deal, which saw it take a stake in media rival EM.TV, and through it win entry to the Formula One business circuit.

But the potential rewards are vast, at least from the motor racing side.

EM.TV may own the firm which created The Muppets, but the motor-racing trust which Kirch Gruppe bought into, and in which it has subsequently raised its stake, owns broadcasting rights to Formula 1.

And not even Kermit & Co can match Formula 1's aggregate world audience of some 5 billion last season, gained from 17 episodes.

Key deal

Furthermore, motor racing entrepreneur Bernie Ecclestone, the trust's founder, last June negotiated a deal with Formula 1's governing body guaranteeing it a 100-year rights extension for $360m.

Bernie Ecclestone who manages F1
Bernie Ecclestone, F1 chief
Compare this with a deal sealed days beforehand, in which BSkyB agreed to pay £1.1bn for the right to show one season's Premier League football games, and Mr Ecclestone could be said to have snapped up something of a bargain.

Yet, with Kirch Gruppe and EM.TV between them now apparently owning 75% of Mr Ecclestone's trust, the entrepreneur may not have benefited from his negotiating skills to the level he would have liked, or predicted.

Coming battles

Not that such interpretations are quite so easy to make.

Formula 1's finances are notoriously complex, and Mr Ecclestone and the sport's governing body have, ominously, in recent weeks reopened talks over June's deal.

Kirch Gruppe also has the rebellion by Formula 1's carmakers to tackle.

But then Dr Kirch, like Zampano, is accustomed to tests of strength.

And Dr Kirch, unlike Zampano, can call on the European broadcasting rights for the next two soccer World Cups to underwrite his forthcoming battles.

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06 Apr 01 | Business
Ecclestone: F1 to remain on free TV
01 Mar 01 | Business
Formula One battle hots up
27 Feb 01 | Business
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16 Feb 01 | Business
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