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Kirch, Disney Make a Deal for German Pay TV

Media: Move, estimated to be worth $1.3 billion, means mogul now has alliances with all leading studio owners.


German media mogul Leo Kirch continued his spending spree in Hollywood, agreeing on Thursday to an exclusive 10-year deal with Walt Disney Co. estimated at $1.3 billion to air Disney live-action films on his pay television systems.

The deal is the fourth major one his Kirch Group has signed in the last few months in transactions that now total about $5 billion. The other companies Kirch is licensing films from are Sony Pictures Entertainment, Warner Bros., Viacom Inc. and MCA Inc.

With this agreement, Kirch is now in alliance with all the major studio owners. Rupert Murdoch's News Corp., which owns Fox studios, participated in Kirch's digital TV launch through satellite TV company BSkyB and is expected to bring programming to the venture.

"Everybody is getting a piece of this German television boom," said Cowen & Co. analyst Harold Vogel.

Kirch has been moving aggressively through his Kirch Group to lock up programming as part of a race with media giant Bertelsmann to become Germany's dominant digital television company. Kirch launched his system, DF1, via satellite last month; Bertelsmann is expected to launch a system this fall.

The reclusive Kirch, 69, who suffers from diabetes and is nearly blind, has been buying up rights to U.S. films and TV shows for years. He now has the rights to an estimated 15,000 films and 50,000 hours of TV shows. Germany, with Europe's largest television market, is one of the most lucrative markets in the world for Hollywood product.

In addition to licensing the movies to Kirch Group through its Disney/ABC International Television, Disney will use the Kirch deal to launch a German version of the Disney Channel.

The Disney deal covers future live-action films released through its Hollywood, Disney, Touchstone and Miramax Pictures units. That would include such upcoming movies as director Ron Howard's "Ransom," starring Mel Gibson, as well as some current releases that have yet to become available on pay TV, notably the hit "The Rock."

Not included are Disney's crown jewels--its animated feature films such as "The Hunchback of Notre Dame"--which the company doesn't license to pay television. One clause in the agreement provides that Disney can elect to run a live-action movie on its German Disney Channel instead of through Kirch's pay TV system.

The $5 billion Kirch has committed to spend is welcome news for Hollywood, which is fighting to boost its profit margins as costs have been rising.

Still, the deals don't provide an immediate shot in the arm to the huge entertainment conglomerates that dominate the U.S. entertainment business. For one thing, payments will be spread over as long as 10 years. In addition, analysts note that some of the new deals simply replace existing ones.

Etienne de Villiers, president of Disney/ABC International Television, said in an interview that Disney's Kirch deal is a new one and doesn't replace a previous one.

Disney didn't release financial details of the transaction. The $1.3 billion that sources estimate as the deal's value could change with a variety of scenarios. Factors that determine the ultimate worth include the number of films Disney feeds to Kirch, whether the movies are hits, and the number of subscribers Kirch eventually signs up.

The Kirch deals have received extensive attention through Hollywood, although some Hollywood executives and analysts argue that the size of some of the recent pay television deals have been hyped based on best-case scenarios.

The Kirch agreement marks the further international expansion of the Disney Channel, which is available in Britain, Australia and Taiwan. New versions are planned in France and the Middle East.

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