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    Kirch Media (Germany) : How It Happened?

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    Komal Josun
    Kirch Media was established in Germany in the 1970s and became the second largest media company in Germany. In the 1990s, Kirch Media purchased long-term movie rights from Hollywood studios and invested $3 billion in digital television services, but failed to accurately predict demand. Growing debt from these investments and from purchasing broadcast rights for sports led to financial problems. By the late 1990s, Kirch's leverage became difficult to manage despite continued borrowing. Kirch Media declared bankruptcy in 2002 due to its debts and launched legal action against Deutsche Bank before the case was settled in 2014.

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    Kirch Media (Germany) : How It Happened?

    Uploaded by

    Komal Josun
    677 views3 pages
    Kirch Media was established in Germany in the 1970s and became the second largest media company in Germany. In the 1990s, Kirch Media purchased long-term movie rights from Hollywood studios and invested $3 billion in digital television services, but failed to accurately predict demand. Growing debt from these investments and from purchasing broadcast rights for sports led to financial problems. By the late 1990s, Kirch's leverage became difficult to manage despite continued borrowing. Kirch Media declared bankruptcy in 2002 due to its debts and launched legal action against Deutsche Bank before the case was settled in 2014.

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    Kirch Media was established in Germany in the 1970s and became the second largest media company in Germany. In the 1990s, Kirch Media purchased long-term movie rights from Hollywood studios and invested $3 billion in digital television services, but failed to accurately predict demand. Growing debt from these investments and from purchasing broadcast rights for sports led to financial problems. By the late 1990s, Kirch's leverage became difficult to manage despite continued borrowing. Kirch Media declared bankruptcy in 2002 due to its debts and launched legal action against Deutsche Bank before the case was settled in 2014.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    677 views3 pages

    Kirch Media (Germany) : How It Happened?

    Uploaded by

    Komal Josun
    Kirch Media was established in Germany in the 1970s and became the second largest media company in Germany. In the 1990s, Kirch Media purchased long-term movie rights from Hollywood studios and invested $3 billion in digital television services, but failed to accurately predict demand. Growing debt from these investments and from purchasing broadcast rights for sports led to financial problems. By the late 1990s, Kirch's leverage became difficult to manage despite continued borrowing. Kirch Media declared bankruptcy in 2002 due to its debts and launched legal action against Deutsche Bank before the case was settled in 2014.

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    KIRCH MEDIA (GERMANY)

    Kirch Media was established in the 1970s as the primary subsidiary of Bavarian
    based Kirch Gruppe. In the 194, the German government ended its own television
    monopoly and opened its broadcasting market to competition. Leo Kirch, Kirch
    Gruppe’s CEO, established fIrst private channel Sat. 1 in Gemrnay. It was the
    second-largest media company in Germany, after Bertelsmann.

    How it happened?
    In 19916, Kirch Media purchased all movie rights from the major Hollywood
    studios for the next ten years. During 1990s, Kirch Gruppe also entered digital
    television services segment. The company invested $3 billion to develop the
    platform Pay-TV business, but failed to predict demand properly. This created
    significant financial and cash flow pressures and ultimately led to the Gruppe’s
    downfall. Financial Flexibility was affected further when Kirch bought broadcast
    rights for sports events and movies from various foreign companies.

    By the late 1990s, the group’s leverage became difficult to manage. Despite its
    weak financial position and growing debt burden, the company continued to
    borrow enough money to keep operating. State-owned banks were instructed to
    continue lending to Kirch Group by Kirch’s close friend Stoiber’s CSU party. By
    providing funds to Kirch’s ill-advised projects, the government wanted to ensure
    the generation of jobs in the state beset by the growing unemployment problems.

    Kirch’s financial problems mounted in the beginning of 2002. Administrators came


    forward to help Kirch Media with growing crisis and created a plan in February
    2002. According to this plan Kirch Media was merged with Sat. 1. Kirch Media
    filed for bankruptcy in April 2002 mainly due to the debts related with the
    purchase of sports rights for its television channels and the launch of digital
    television services. Its television broadcasting segment was subsequently
    acquired by a group led by the US media investor Haim Saban. Kirch’s exit marked
    the end of an era that began in 1980s. The Pay-TV segment, which contributed
    largely to the financial problems of Kirch Group was revived and benefitted by the
    new management.
    The major causes of the collapse of Kirch Media have been explained below.

    i. Lack of Transparency. Kirch Gruppe and Kirch Media lacked transparency in


    their financial statements, high degree of secrecy were maintained which
    made it difficult for the stakeholders to understand the company’s true
    financial position.
    ii. Ill-advised Projects. The company was involved in some expensive and ill-
    advised projects as digital television division and failed to gather realistic
    projections of its demand and supply. This project brought a loss of $900
    million to Kirch Media.
    iii. Long-term Commitments. The company entered into various long-term
    commitments which reduced its financial flexibility. It became difficult for
    the company to manage its leverage.
    iv. Heavy debt. The company continued to borrow despite its weak financial
    position and growing debt burden. Kirch Media had bank debts of around
    $4.8 billion and billions of dollars in other liabilities.
    v. Defamation. Deutsche Bank CEO Rolf Breuer expressed concerns over the
    creditworthiness of the group. Kirch Media’s financial situation was further
    affected nu the negative comments by CEO of Deutsche Bank.
    vi. Regulators’ Complicity. State-owned banks were directed to provide
    uninterrupted credit to the company. Massive leverage created a conflict of
    interest among bankers, government officials and the company. State
    taxpayers were made to pay for the flaws and weaknesses of the company.
    vii. Over-expansion. CEO Kirch expanded its business rapidly without proper
    strategic planning. Funds were invested in many ventures in a reckless
    manner and as a result, most of these ventures failed to generate sufficient
    revenue for the company. CEO Kirch’s lust for power was ultimately
    responsible for the downfall of Kirch Group.
    viii. Audit Failure. The company’s external auditors KPMG failed to make
    proper assessment of the debt incurred by the company. The auditors
    should have warned the company against the excessive leverage
    undertaken by it.
    Legal Fight with Deutsche Bank
    After the collapse of Kirch Media, Leo Kirch sued the Deutsche bank and its
    former CEO Rolf Breuer for the negative comments about the Kirch Group’s
    finances that fostered its collapse. Leo Kirch passed away in 2011. The case
    was settled in February 2014 and Deutsche Bank agreed to make a
    payment of $775 million to Kirch’s heirs, without admitting guilt to the
    charges.

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