MCA Strikes Huge Deal With German Firms

MCA Inc. became the latest Hollywood studio to cash in on the exploding German television market with the announcement of two agreements to sell movies and TV shows that could generate revenues of more than $2.5 billion over the next 10 years for the company.

With new digital technologies vastly expanding its television channels, Germany has become a grand bazaar for studios eager to sell long-term packages of TV and movie rights. Germany is shaping up to be Europe’s largest importer of U.S. programming because of its strong economy, well-developed advertising base and large middle class.

The race to launch new digital pay TV services has escalated the prices paid for U.S. programming.

Taken together, studios have struck deals in recent months with German firms that are potentially worth more than $6 billion.

“This has been a bonanza for the studios, especially at a time when the domestic video and theatrical market is so blase,” said Jessica Reif, a media analyst at Merrill Lynch. “It’s a great way for them to cover their costs.”

While MCA’s deal is similar to those struck by studios such as Paramount, it has an added feature of providing for the financing of television development in the U.S. The deals will also help MCA jump-start its international TV channel expansion, an area where it has lagged competitors.

“These partnerships form the cornerstone for MCA’s expansion strategy abroad,” said Sandy Climan, executive vice president of MCA. “MCA is firmly established as a leader in this market.”

Climan contended that “this is the largest long-term pay and free deal ever reached.” But the complexity of the arrangements make it difficult to directly compare the various deals cut by the studios.

Unlike some of these other deals, MCA will split its rights between the two major German broadcasters, the Kirch Group and RTL Television. Both parties had been vying for pay and free-TV rights and have been warring for control of the emerging digital pay TV market.

Frank Biondi Jr., chairman of MCA, implied that the studio got a bigger price than some of its rivals by splitting the deals. Viacom, for example, struck a deal in April to sell rights for both pay and free television in Germany to Kirch that could be worth as much as $2 billion over 10 years.

“These deals were all fueled by the horse race between the two to launch digital pay services,” said Biondi, who was fired as president and chief executive of Viacom in January in part because Chairman Sumner Redstone saw him as moving too slowly to make overseas deals. “Kirch wanted the pay rights more, and RTL was more risk-averse to pay.”

After four months of negotiations, Kirch won the bidding for pay television rights in Germany. In a deal estimated to be worth more than $1 billion, Kirch will license movies created over the next 10 years by MCA for a new digital pay service launched Sunday in partnership with News Corp.

Kirch has also agreed to carry on the service two new channels, the first launched by MCA internationally. One will be a movie channel, drawing from MCA’s library of 3,000 theatrical releases, while the other will focus on action-adventure-mystery programs. MCA produces such syndicated hits as “Hercules” and has a library that includes series such as “Columbo” and “Magnum, P.I.” that could be included on the channel.

MCA has fewer international channels than its rival studios because of its scant cable offerings in the U.S. from which to draw and its slow start in launching new channels specifically for overseas markets. MCA also has been restricted in launching new cable services by an agreement with Viacom, its partner in USA Network.

In contrast, as part of its deal with Kirch, Viacom will get coverage on the digital service for MTV Europe, VH-1 Germany and a Nickelodeon block in addition to four new channels. Warner Bros. is launching a German version of its WB Channel, which already airs in another version in Latin America.

For free broadcast television, RTL has agreed to license MCA’s new and existing TV shows as well as certain films and TV series from its library, in a 10-year deal worth $1.5 billion. It has also agreed to co-finance a minimum of 25 TV series over the next 10 years with MCA.

“This will allow us to increase the amount of new production in the U.S.,” said Gregory Meidel, chairman of MCA Television. “The way you get an ‘ER’ or an ‘NYPD Blue’ is by spending money and taking risks.”

MCA has been rebuilding its television department since being taken over by Seagram last year and has increased the number of pilots developed and series sold to the network for prime-time schedules. The company said the help in financing these series from RTL could vastly offset the deficits.

Other studios, including Sony, have co-financed series with RTL, but not on the scale MCA announced Tuesday.