ProSiebenSat.1 Media AG

Medienhallee 7
D-85774 Unterföhring
Germany
Telephone: +49-89-95-07-10
Fax: +49-89-95-07-11-22
Website: http://www.prosieben.com

Public Subsidiary of Saban Group (36 Percent Owned)
Incorporated: 2000
Employees: 3,000
Sales: EUR 2.0 million (2001)
Stock Exchanges: Frankfurt
Ticker Symbol: PSM
NAIC: 513120 Television Broadcasting; 513210 Cable Television Networks; 512110 Video Production

ProSiebenSAT.1 Media AG is the largest television company in Germany. It operates four stations: ProSieben (Pro 7), SAT.1, Kabel 1, and news channel N24. It also has a minority interest in Euvia Media AG & Co., which operates station Neun Live and the interactive shopping channel TM3. In addition to television broadcasting, the company’s businesses include merchandising, multimedia, and information services.

Creating the Largest Television Company in Germany Through a Merger in 2000

ProSiebenSAT.1 Media AG was formed in 2000 by the merger of ProSieben Media AG and SAT. 1. The merger created the largest television company in Germany, with ProSieben Media AG owning 72 percent of the new company and SAT.1 owning 28 percent. KirchMedia GmbH & Co. was the majority shareholder in the new company, owning some 52.5 percent of its capital stock. Other key shareholders included the German publishing conglomerate Axel Springer Verlag AG, which received an 11.48 percent stake in the new company in exchange for its SAT.1 stock.

At the time of the merger, KirchMedia owned a 59 percent controlling interest in SAT.1, while Axel Springer Verlag owned the remaining 41 percent. KirchMedia also held a 58.4 percent controlling interest in ProSieben Media AG through its PKS subsidiary. ProSieben’s other principal shareholder was retailer Rewe-Beteiligungs-Holding National GmbH (REWE), which held the remaining 41.6 percent. Instead of being a shareholder in the new company, REWE exchanged its ProSieben shares for a 6 percent interest in KirchMedia. The new company was expected to generate combined revenue of EUR two billion and have about 3,000 employees.

Background of SAT.1: 1984-99

SAT.1 began broadcasting on January 1, 1984, as PKS (Programmgesellschaft für Kabel- und Satellitefunk). It was Germany’s first commercial television station, and viewers did not have to pay to receive it. SAT.1 was launched by a consortium of German broadcasters, and PKS was affiliated with the Kirch Media Group. The Kirch Group was headed by Leo Kirch.

In October 1987 SAT.1 began broadcasting the innovative morning show Deutschland heute morgen, which became the most successful morning show on German television. It would take public broadcasters five years to launch their own imitations of the show.

In 1988 the Kirch Group took over PKS by obtaining a 43 percent interest in SAT.1. The company’s other large shareholder was German media conglomerate Axel Springer Verlag. In 1990 SAT.1 reached more than ten million households for the first time, registering a potential audience of 12.23 million individuals in July 1990, the equivalent of 51 percent of all households with TVs.

In 1997 both shareholders—Kirch and Axel Springer Verlag—increased their holdings by buying out smaller shareholders, with Kirch Group taking a 59 percent stake and Axel Springer Verlag owning the remaining 41 percent. By the beginning of 1997 SAT.1 ranked second among commercial television channels in Germany with a 13 percent market share, and fourth overall among all German TV channels. Its advertising revenue was about $1 billion in 1995, with a net operating profit of approximately $8 million. The channel was known for attracting an older audience than that of its competitors in the free TV market. In 1999 SAT.1 opened a new media center in the heart of Berlin.

History of ProSieben Media AG: 1986-99

The roots of ProSieben Media AG began with the founding of Eureka Television GmbH in 1986. Eureka operated Eureka TV, the predecessor of ProSieben. Eureka TV began broadcasting in 1986, and ProSieben began broadcasting in January 1989. By the end of the year both SAT. 1 and ProSieben could be seen throughout Europe via satellite transmission.

An early investor in ProSieben was Thomas Kirch, son of German media baron Leo Kirch. In 1988 Thomas Kirch bought a 49 percent interest in ProSieben. Throughout its history ProSieben would have close ties to the Kirch media empire.

ProSieben achieved several milestones in 1990. In March the company moved from Schwabing to its present location in Unterföhring, near Munich, which was close to the headquarters of KirchMedia GmbH & Co. The company had about 120 employees. In July ProSieben completed construction of a new studio, and in October it became the first German TV station to broadcast continuously for 24 hours. In 1991 ProSieben established a new subsidiary, Teledirekt GmbH, to promote the use of satellite technology. In 1992 Kabel 1, ProSieben’s sister station, began broadcasting, and the sales company MediaGruppe München was formed.

SZM Studios was established in September 1993. This wholly owned subsidiary grew to become the largest service company in ProSieben’s group. It offered studio production, postproduction, animation, and visual effects services. SZM Studios became well known in Europe for both conventional and virtual productions. In 2001 it laid soundtracks and aired 3,500 productions and 10,000 trailers and had about 900 employees. It also won international awards for a wide range of 3-D animation productions and visual effects. SZM Studios also handled ProSieben’s information technology (IT) infrastructure, overseeing some 200 data servers, 730 Internet domains, and 3,200 PC workstations. Its broadcast specialists were responsible for transmitting television signals via cable and satellite to 11 TV stations in Germany, Austria, and Switzerland.

During 1995 ProSieben formed a department of new business development. At the end of the year the company became a stock corporation. During the year German regulators investigated the ties between ProSieben and the Kirch Group, which also owned part of competitor SAT. 1 and the German sports channel DSF. As a result of the investigation, Thomas Kirch reduced his stake in ProSieben to 24.5 percent in 1996 in anticipation of the company going public.

In 1996 ProSieben Television AG changed its name to ProSieben Media AG. During the year ProSieben acquired Merchandising München (MM Merchandising Munich), and ProSieben and Kabel 1 were granted new broadcasting licenses. ProSieben Digital Media was formed in 1996, and ProSieben Online (www.prosieben.de) was launched in April. Dubbed “Webtainment,” the Website was the third most popular in Germany by 1997. It offered hundreds of pages of programming information, interactive entertainment, and shopping opportunities. In September 1996 the Website for SAT.1 went online. For 1996 ProSieben reported revenue of $978 million and pretax profits of $102 million.

ProSieben went public in 1997 and was the first German television company to be listed on the Frankfurt Stock Exchange. The public offering took place in July 1997 and was the result of negotiations about the extension of ProSieben’s broadcasting license. At the time ProSieben was Germany’s most profitable television network. The public offering generated about $740 million, with $210 million going to ProSieben. The rest of the proceeds went to Thomas Kirch, son of Leo Kirch, who held 60 percent of the company’s voting stock. Retailer Rewe-Beteiligungs-Holding National GmbH (REWE) held the remaining 40 percent. The very successful offering was oversubscribed by 50 times, with investor interest based on the rapid growth of Germany’s television advertising market.

At the time it went public ProSieben’s television programming was more Hollywood-oriented than other German networks. Much of the network’s programming was supplied by the Kirch Group, which had close ties with the major Hollywood studios. Some 60 percent of the movies and TV series shown on ProSieben were imports. In addition, some 20 and 30 movies were produced in Germany each year for ProSieben. ProSieben became the first private television network to co-produce German feature films in 1994, and by 1997 it was co-producing about five pictures a year. ProSieben also aired 30 hours of animation programs per week for the 3 to 13-year-old age group.

ProSieben’s principal target audience, however, was the 14-to 49-year-old age group. Its main competitors were SAT.1 and RTL, both of which were older, more established networks that began broadcasting before ProSieben. Although ProSieben ranked third behind its competitors in terms of overall ratings, it was challenging and sometimes surpassing them in selected age groups and in advertising revenue.

ProSieben’s chairman and CEO when it went public was Georg Kofler, a former personal assistant of Leo Kirch. Kofler became ProSieben’s chairman and CEO in 1995 after serving as the company’s managing director since 1988. He studied journalism and communications at the University of Vienna. Kofler stepped down in February 2000 and was replaced by Urs Rohner, a Swiss attorney who was a legal advisor to the Kirch Group.

Company Perspectives:

The merger of ProSieben Media AG and SAT.1 into ProSiebenSAT.1 Media AG has created a productive media company with an integrated family of broadcasters that can maintain and expand upon its leadership position on the market. ProSiebenSAT.1 Media AG is a cutting-edge and dynamic corporate group in audio-visual communications which is systematically researching and opening up new fields of endeavor firmly footed, however, in its core business of advertiser-paid television.

At the end of 1998 ProSieben acquired a majority interest in CM Community Media, a multimedia company. ProSieben also took over the ddp news agency. In February 1999 ProSieben acquired an interest in the European e-commerce company LetsBuyit.com. Later in the year Thomas Kirch traded his 58.4 percent stake in ProSieben for an interest in KirchMedia, the Kirch Group’s television rights and production operation. As a result, KirchMedia became the controlling shareholder in ProSieben. For 1999 ProSieben increased its audience share as well as its revenue and net income. The company’s two channels, Pro 7 and Kabel 1, increased their combined audience share from 13.1 percent in 1998 to 13.8 percent in 1999. In the target audience of 14- to 49-year-olds, the two stations had a combined audience share of 18.8 percent.

The Largest Television Company in Germany: 2000-2002

At the beginning of 2000 ProSieben launched a 24-hour news channel, N24. At first the channel broadcast for 18 hours and was received by only 30 percent of Germany’s 33 million TV households. To support N24 ProSieben nearly doubled its annual news budget to about $60 million.

In June ProSieben announced that it would merge with rival network SAT.1 to form a new company, ProSiebenSAT.1 Media AG. The merger was certified in July and approved by the shareholders of both companies in August. Urs Rohner became chair of the new company, with Kabel Γ s managing director Nicolas Paalzow replacing Rohner as managing director of ProSieben. Fred Kogel, head of SAT.1, became a member of the new company’s advisory board and was replaced by Martin Hoffmann, SAT.1’s former deputy director. Shares of the new company began trading on the Frankfurt Stock Exchange on October 13, 2000, under the symbol PSM. The company also debuted a new logo that combined the numbers one and seven, which represented the firm’s well-known stations Pro 7 and SAT.1.

As part of the integration of ProSieben and SAT.1, the marketing and merchandising teams of the two companies were combined. ProSieben’s subsidiary MediaGruppe München and SAT.1’s Media 1 merged to form SevenOne Media, which operated one of ProSiebenSAT.1’s major merchandising operations, the SevenOne Club & Shop. The SevenOne Club included the ProSieben Club, a viewer’s club with more than 300,000 members who were given access to exclusive products and services related to the channel’s television shows and characters. In 2001 Kabel 1 and SAT.1 formed their own viewer’s clubs to build viewer loyalty. Within a year the SAT.1 club gained 136,000 members, while Kabel 1 had 96,000 “VIPs” who were given a look behind the scenes. Beginning in January 2002, the SevenOne Club & Shop took over the e-commerce activities for SAT. 1, ProSieben, Kabel 1, Sport 1, and the RedSeven Internet community. Each TV channel had its own homepage to build viewer loyalty and increase opportunities for product sales.

ProSiebenSAT.1’s other principal merchandising subsidiary was MM Merchandising Munich, a full-service licensing agency. It specialized in licensing the rights for film, television, and publishing in the areas of cartoons, reality TV, and branding. As a result more than 3,500 licensed products were launched in 2001, and more than 11,000 companies were regular clients.

At the end of 1999 MM Merchandising Munich founded ArtMerchandising & Media AG to focus on the international marketing of incidental art rights. It marketed the rights of world-renowned artists ranging from Salvador Dali to Vincent van Gogh as well as those of contemporary artists and film personalities such as Marlene Dietrich and Charlie Chaplin.

ProSieben and SAT.1 also combined their news operations. N24 remained a subsidiary of ProSiebenSat. 1 and became the central information provider for all channels of ProSiebenSAT.1. It oversaw individual news production units for SAT.1, ProSieben, and Kabel 1. With the merger of ProSieben and SAT.1 retroactive to January 1, 2000, the new company reported revenue of EUR 2.15 billion and pretax profits of EUR 205 million for 2000.

ProSiebenSAT.1 and the Kirch Group combined their new media operations ProSieben Digital Media Gmbh and Kirch New Media AG at the beginning of 2001. The new company was called Kirch Intermedia GmbH, with ProSiebenSat. 1 owning 49.9 percent of the company. Kirch Intermedia was responsible for all new online undertakings.

Key Dates:

1984:

SAT. 1 becomes the first German commercial television company on the air when it begins broadcasting as PKS.

1986:

Eureka Television GmbH, the predecessor to ProSieben, is founded.

1989:

ProSieben Television GmbH begins broadcasting.

1990:

ProSieben becomes the first German television station to broadcast around the clock.

1992:

Kabel 1, ProSieben’s sister station, begins broadcasting.

1993:

SZM Studios is founded.

1995:

ProSieben Television becomes a stock company.

1996:

ProSieben Television changes its name to ProSieben Media AG following the launch of ProSieben Online.

1997:

ProSieben is the first German television company to be listed on a public stock exchange.

2000:

ProSieben and SAT.1 merge to form ProSieben-SAT.1 Media AG.

2002:

KirchMedia GmbH & Co., majority shareholder of ProSiebenSAT.1 Media AG, files for insolvency; Saban Group purchases KirchMedia’s stake in ProSieben.

In May 2001 ProSiebenSat. 1 acquired a 48.4 percent interest in Euvia Media AG & Co. from HOT Networks AG for about EUR 67 million. Euvia was HOT Networks’ shopping channel subsidiary. Under ProSiebenSAT.1’s ownership, Euvia planned to shift the focus of its shopping channel TM3 to provide more entertainment along with interactive elements. As part of the purchase, ProSiebenSAT.1 agreed to loan Euvia a total of EUR 112 million to help launch new channels, including a planned travel channel. Around this time SAT.1 and Kabel 1 began broadcasting two-hour interactive shopping segments.

Toward the end of 2001 a proposed merger between KirchMedia GmbH, which was ProSiebenSAT.1’s largest shareholder, and ProSiebenSAT.1 was announced. The proposed merger with KirchMedia was canceled in March 2002, however, due to the economic environment and KirchMedia’s financial situation. Economic conditions were causing ProSiebenSat. 1 to experience a significant downturn in television advertising revenue, and KirchMedia was laboring under an estimated debt of nearly EUR 6 billion. KirchMedia planned to file for insolvency later in 2002. Looking to take advantage of the situation before the merger was canceled, several U.S. media companies appeared interested in acquiring Kirch-Media’s interest in ProSiebenSAT.1, including AOL Time Warner, Viacom, and Walt Disney Co.

With a soft television advertising market in Germany, ProSiebenSAT.1 had a difficult year financially. For 2001 the company reported revenue of EUR 2.01 billion, a decline of 6.5 percent from the previous year. Pretax profits fell 48 percent to EUR 106 million. Net income was EUR 68 million, down 27 percent from the record level of 2000. The downturn in TV advertising continued in 2002. During the first half of 2002 the company generated revenue of EUR 985 million, a 4 percent decline from the previous year. Pretax income was EUR 25 million, down from EUR 89 million in the same period of 2001, due in part to lower advertising revenue and the high cost of broadcasting the FIFA World Cup on SAT. 1. The company also took a charge of EUR 8 million for the failed merger with KirchMedia.

Looking ahead, ProSiebenSAT.1 saw no sign of a turnaround in the advertising market. The company continued to strengthen its programming by signing a contract with Buena Vista International Television for the exclusive rights to the film productions of Hollywood studios Disney, Touchstone, Miramax, and Dimension. The multiyear contract called for 20 to 30 films as well as a range of made-for-TV movies and three or four series per year.

In a separate transaction, the company’s news channel, N24, acquired more than 1,600 hours of documentary programming in areas such as science, technology, nature, travel, medicine, culture, and space from an unnamed provider. As of December 2002, N24 reached more than 70 percent of all TV households in Germany and was available via cable and nationwide via satellite. Ownership of ProSiebenSat. 1 changed hands in 2003 when majority shareholder KirchMedia agreed in March to transfer its stake to the Saban Group. Under the agreement, Saban would own 36 percent of ProSieben’s shares and 72 percent of the company’s voting rights.

Principal Subsidiaries

SAT.1; ProSieben; Kabel 1; N24; SevenOne Media; Euvia Media AG & Co. (48.4%); Kirch Intermedia GmbH; MM

Merchandising München; ArtMerchandising & Media AG (66%); SevenOne Club & Shop; SevenSenses; SZM Studios; ProSieben Information Service.

Principal Competitors

CANAL + Group; Groupe AB S.A.; RTL Group S.A.

Further Reading

“Axel Springer Eyes 25% Stake of ProSiebenSatl,” TV Meets the Web, June 25, 2002.

Brockmeyer, Dieter, “Germany’s Younger Kirch Speaks Out,” Multichannel News, December 1, 1997, p. 29.

Foreman, Liza, “Going Public Produces Profits,” Variety, November 17, 1997, p. 52.

——, “Ich Bin Ein Topper,” Variety, September 6, 1999, p. 30.

——, “New Unit Sets Off Kirch Exec Shuffle,” Variety, July 10, 2000, p. 39.

——, “ProSieben Favors Close ’Family’ Ties,” Variety, January 31, 2000, p. 25.

——, “Teutonic Tykes Tune to Toons,” Variety, November 17, 1997, p. 40.

Hils, Miriam, “German Web Young and Hungry,” Variety, November 17, 1997, p. 39.

——, “Homegrown Pix a Growing Biz,” Variety, November 17, 1997, p. 39.

——, “Kofler Eyes Future,” Variety, November 17, 1997, p. 40.

——, “Programmer Makes Waves on High Wire,” Variety, November 17, 1997, p. 44.

——, “SAT.1 Slips Despite Kirch Group Clout,” Variety, January 13, 1997, p. 124.

——, “Surf’s Up on Webtainment,” Variety, November 17, 1997, p. 52.

“Kirch Media Snubs Last Minute Offer from Saban,” TV Meets the Web, December 9, 2002.

Meza, Ed, “Kirch Coming Apart,” Daily Variety, September 20, 2002, p. 6.

——, “Kirch Faces Crunch,” Variety, March 5, 2002, p. 9.

——, “Kirch Group’s Union Delayed,” Daily Variety, February 20, 2002, p. 7.

——, “Kirch Grows with ProSieben Buy,” Variety, October 11, 1999, p. 8.

——, “A Not-for-Sale Sign,” Daily Variety, March 11, 2002, p. 22.

——, “Springer Wants More ProSiebenSAT.1,” Daily Variety, November 1, 2002, p. 4.

——, “Suitors Circle Kirch,” Daily Variety, March 8, 2002, p. 7.

“Pro 7 Revs Up Again,” Broadcasting & Cable’s TV International, November 15, 1999, p. 5.

“ProSiebenSAT.1 Goes Shopping,” CableFAX’s Pay-TV Today, May 22, 2001.

“ProSieben’s N24 Launches,” Broadcasting & Cable’s TV International, February 7, 2000, p. 9.

“ProSieben Ups Share,” Broadcasting & Cable’s TV International, January 10, 2000, p. 9.

“U.S. Media Giants Eye ProSiebenSAT.1,” EuropeMedia, March 8, 2002.

—David P. Bianco