Suddenly, Herr Bauer Is Herr Television

With the Kirch deal, he's an instant mogul. Is he up to the job?

Heinz Bauer, Germany's newest media czar, is known as a determined cost-cutter. How determined? During a 1997 printers' strike in Magdeburg, the licensed helicopter pilot personally airlifted workers and supplies over a picket line rather than cave to union demands.

The 63-year-old magazine publisher, who also pilots his company's Falcon 900 jet, will need the same kind of determination and attention to costs as he prepares to guide a TV network. Heinrich Bauer Publishing, which began in the 19th century printing business cards, is poised to take control of the TV and film assets of bankrupt Kirch Group before the end of January. In a stroke, the estimated $1.8 billion deal--in partnership with Munich-based bank HVB Group--will catapult Bauer to the big leagues of the European media business.

Assuming the contracts are signed on schedule (Bauer has been known to walk away from deals at the last minute), the Hamburg company will control nearly half the $4.2 billion commercial TV market in Germany and the largest film library in Europe. Bauer's annual sales will double, to nearly $4 billion, and the company will for the first time move decisively outside its core business of downmarket publications ranging from TV program guides to teen rags to skin magazines. So far, Bauer's experience in TV consists of a minority stake in RTL II, a nationwide channel that features imported action programs and films.

Can Bauer handle it? Competitors and some analysts are skeptical. In fact, some local rivals are privately gleeful that KirchMedia is going to Bauer rather than a more seasoned foreigner who could give them more of a run for their money. Outside bidders included a group linked to Italian Prime Minister Silvio Berlusconi's Mediaset and a group backed by Los Angeles producer Haim Saban. Indeed, there has been grumbling that the deal was fixed by political interests eager to make sure the German media scene remains German. Representatives for KirchMedia and HVB deny the assertion.

Certainly, Bauer has no obvious qualifications other than the fact that it's about the only local media company not preoccupied with surviving one of the worst advertising downturns in decades. Bauer Publishing doesn't release profit figures, but the company says it managed to boost revenue 2% in 2002, to $1.85 billion, despite a 10% drop in print advertising in Germany. Bauer managers are "typical Hamburg businessmen who turn over every coin three times before they spend it," says a competitor.

Cost-cutting alone probably isn't enough to turn around KirchMedia, though, and could even backfire. The key prize is publicly traded ProSiebenSat.1 Media, a collection of TV channels in which Bauer will get 88.5% of the voting shares. In ad revenue, ProSieben is first in the German market with a 46% share, compared with 41% for Bertelsmann's RTL Group. Yet ProSieben's imposing market position hasn't translated into profit recently. The Munich company, burdened by the costs of broadcasting World Cup soccer, reported a pretax loss of $55 million in the third quarter, while sales slid 10%.

But too much cost-cutting would likely be counterproductive. ProSieben's ratings have slipped to 21.5% of all viewers from 23.1% in 2001. Such statistics indicate that ProSieben needs better programming--which costs money. "There isn't all that much they can cut without hurting programming," says Iris Schäfer, an analyst at Landesbank Baden-Württemberg in Stuttgart.

Heinz Bauer shares some similarities with Leo Kirch, whose assets he is poised to acquire. Like Kirch, Bauer avoids publicity and is close to Germany's conservative political Establishment. But Bauer is not expected to push a political agenda via his TV stations. "He's not interested in influencing society. He's interested in making money," says Peter Glotz, director of the Institute for Media & Communications Management at Switzerland's University of St. Gallen. With luck, that focus will stand Bauer in good stead as he tries to revive the old Kirch empire.

By Jack Ewing in Frankfurt

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