Viacom, German Firm Agree to Joint TV Venture

In one of the largest deals of its kind, Viacom Inc. has struck a TV partnership with Kirch Group, Germany’s second-largest media company, that could generate as much as $2 billion in revenues for the New York-based company over the next 10 years.

Kirch has purchased rights in German-speaking territories to TV shows and films created by Viacom over the next 10 years, as well as some programs from its Paramount Pictures library. In addition, Kirch will carry Viacom’s MTV Europe, Nickelodeon and VH-1 Germany cable networks and up to four new channels created by the company on a 20-channel digital pay TV service due to launch this month. Viacom also has an option to buy a 12% stake from Kirch in Gestevision Telecinco, the largest of two private broadcast networks in Spain.

Viacom is the latest Hollywood studio eager to sell its wares into the richest economy in Europe as digital satellite technologies explode the number of channels there. Columbia Tristar inked a pact with Kirch in February worth an estimated $1 billion over five years, and Disney, Warner Bros. and MCA are said to be working on similar sales to one of the two media consortiums in Germany, which has 40 million TV households, less than half as many as the United States.

The explosion in digital satellites has realigned the TV topography of Europe, with Kirch facing off against a recent alliance among Bertelsmann A.G., Rupert Murdoch’s BSkyB and CLT, which plans a 100-channel digital service in Germany by early fall.

Analysts say the emergence of two separate camps in Germany in recent months enabled Viacom to extract a higher price than Wall Street had expected by creating a bidding war for its library product. Viacom was also able to leverage distribution for its networks, distinguishing its deal from Sony’s.

Sumner Redstone, the hard-driving chairman of Viacom, said that before he personally stepped into the fray in late February by flying to Europe to meet with the heads of media companies in England, Belgium, France and Germany, his company had been negotiating only with one buyer.

“This is bigger money than we thought it would be--and three to four times as much as Viacom is getting out of that market now,” said Jessica Reif, an analyst at Merrill Lynch.

She said Viacom will collect $50 million upfront on the deal, which is retroactive to January.

The deals help take the sting out of the company’s failure to sell Spelling Entertainment. Viacom put Spelling on the block last summer, hoping that the proceeds, along with those from a stalled cable sale, would help defray debt from its purchases over the last two years of Paramount and Blockbuster Entertainment.

But it has yet to find a buyer willing to pay the $1.4-billion asking price for Spelling, and sources speculate that it might keep the TV production studio, whose stock has plunged to $9 a share from a $14 high.

“We are starting to see some good news out of Viacom after a spate of bad news,” Reif said, citing the disappointing performance of Blockbuster Entertainment, Paramount’s movie division and the surprising ouster in February of Viacom’s highly regarded chief executive, Frank Biondi.

Redstone seemed eager Monday to use the Kirch announcement as an illustration of Viacom’s new aggression, post-Biondi. When Redstone fired Biondi, he called Biondi’s “laid-back” management style ill-suited at a time of increasing competition globally. Redstone assumed Biondi’s title, promising to amp up international deal making.

“This is how the company is going to operate,” said Redstone, who at age 72 is Viacom’s controlling stockholder. “With all the growth overseas, you can’t wait, you have to go.”

He said he was heading to South America Monday and to Asia in May to lay the groundwork for similar alliances in those regions.

Paramount has had a 30-year relationship with Leo Kirch, who controls the Kirch group and has established himself as a gatekeeper in Germany by locking up crucial library rights. Kirch co-finances such Paramount TV shows as “JAG.”

Paramount Television head Kerry McCluggage, who spearheaded negotiations, said the deal also provides the potential of other equity joint venture partnerships with Kirch and for Viacom to become an equity owner is the German satellite service.