News Corp. Hunts Europe Pay TV Again

The last time News Corp. spent big getting into the European pay-television market, it lost billions of dollars. Now, the media conglomerate is taking a second look.

In a move that could significantly expand the responsibilities of James Murdoch, the youngest son of Chairman Rupert Murdoch, News Corp. is considering bids for two major players in their local pay-TV markets, Germany’s Premiere AG and Spain’s Digital+, according to people familiar with the situation. The two satellite broadcasters together would likely cost more than €4 billion ($6.3 billion), analysts say.

If News Corp. goes ahead, the move would represent a significant change of tack in Europe for the New York-based company. Germany has long been a no-go zone for News Corp., which lost more than €2 billion there six years ago on its investment in Kirch Group, a media company and big pay-TV provider that went bankrupt.

Associated Press

In a move that would expand the responsibilities of James Murdoch, head of News Corp.’s European and Asian operations, News Corp. is considering bids for Germany’s Premiere AG and Spain’s Digital+.

Now, as new digital-TV services are undermining Europe’s traditional TV networks, News Corp. executives are wading back in to the Continent’s huge TV market. Over the past six months, News Corp. has built a 25.01% stake in Munich-based Premiere and is considering making an offer for the whole company, according to a person familiar with the matter. Even if News Corp. doesn’t make a bid, it wants to install its own managers in the company, this person said.

In Spain, media conglomerate Prisa SA is considering selling its Digital+ unit, one of the country’s biggest satellite broadcasters. The sale process is likely to begin by the end of July, said people familiar with the situation. Other possible bidders include Paris-based Vivendi SA and Spanish telecom groups Cableuropa SAU, which operates as ONO, and Telefónica SA. ONO and Telefónica declined to comment.

A person close to News Corp. said no action was imminent and there is no certainty News Corp. will try to buy either company. A News Corp. spokeswoman said the company doesn’t comment on speculation.

If News Corp. buys Digital+ or Premiere, the acquired companies would become the responsibility of James Murdoch, the head of News Corp.’s European and Asian operations. Widely seen as his father’s heir within the company, the 35-year-old Mr. Murdoch could burnish his leadership credentials by growing the businesses as he did U.K. satellite broadcaster British Sky Broadcasting Group PLC, which he ran from 2004 until late last year. News Corp. has a 39% stake in BSkyB.

Making the investments work wouldn’t be easy. Pay TV isn’t particularly popular in Spain, and Germany is rife with satellite-TV piracy. While Europe’s affluent audiences are appealing, the investments could leave News Corp. with less money to spend in faster-growing markets like India. News Corp. owns Dow Jones & Co., publisher of The Wall Street Journal.

The acquisitions would give News Corp. greater leverage in buying satellite space and negotiating movie purchases with Hollywood studios. But the big price tags could make it difficult for the company to buy both. “Both of them are great investments, but if he buys Premiere, this is money not spent on” Digital+, said Andrea Azzimondi, an analyst at research firm Pali International in London.

At Premiere, News Corp. has so far used its stake to appoint two of James Murdoch’s lieutenants to the board this month: Sky Italia Chief Executive Tom Mockridge and Mark Williams, chief financial officer for News Corp. in Europe and Asia. It is unclear how News Corp. would get management control of Premiere. With two of the six board seats, it doesn’t have the numbers to force out CEO Michael Börnicke.

“It is not possible at the moment” for News Corp. executives to run the company, said Premiere spokesman Torsten Fricke. “They don’t have any members on the management board.” If News Corp.’s shareholding goes above 30%, the company will be required under German law to bid for all Premiere shares. Buying the 75% of Premiere that News Corp. doesn’t already own would cost about €1.2 billion at Thursday’s closing price.

On Wednesday, one potential obstacle to a Premiere bid fell. The European Union cleared News Corp. to buy the company on the condition that other operators are allowed to use Premiere’s satellite platform.

With 2.1 million subscribers, Digital+ is one of Spain’s biggest pay-TV broadcasters. But the industry is growing slowly, and most Spaniards choose not to pay for television. Walt Disney Co. recently decided to make its Disney Channel free in Spain, because it couldn’t get enough viewers to pay.

A Prisa spokeswoman said the company is likely to decide in July whether to sell Digital+. Analysts value the unit at between €3 billion and €3.5 billion, although the price could be higher depending on how much debt is included. If News Corp. wants to buy, it might find itself in a bidding war. Vivendi CEO Jean-Bernard Lévy recently told French newspaper Les Echos that his company would look at Digital+ “with interest.” A Vivendi spokesman said he didn’t have anything to add to Mr. Lévy’s comments.

News Corp.’s last move into Germany ended in failure when media mogul Leo Kirch lost billions of dollars on investments in pay TV, film and broadcasting. News Corp. was a minority investor in the Kirch Group without management control, so its executives found themselves powerless to act as the company overloaded on debt and in 2002 turned into what was then the biggest corporate collapse in Germany’s postwar history.

– By AARON O. PATRICK

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