RTL prepping Five sale

Broadcaster appoints advisors to begin formal tender process

LONDON -- As European broadcasters face up to the prospect of an uncertain advertising horizon over the next 12 months and debt fears sweep through some of its key economies, it emerged Wednesday that the continent's biggest free- to-air broadcaster RTL is preparing to sell off its ailing British network Five.

RTL is understood to have appointed advisors to begin a formal tender process for the business. Among those thought likely to emerge as potential buyers include British commercial broadcaster ITV and News Corp-backed pay TV giant BSkyB, though neither commented Wednesday.

RTL chief executive Gerhard Zeiler is thought to have had conversations with ITV boss Adam Crozier floating the idea of merging Five and RTL's global production and licensing division Fremantle Media with ITV's own broadcasting and production businesses.

At the same time Jeremy Darroch, CEO of the highly cashflow-positive satellite broadcaster BSkyB, is also thought to be extremely interested in looking at a deal, sources added.

Five, home of the "CSI" franchise and daytime soap "Neighbours," has long been the problem child in RTL's pan-European channel portfolio. Last year, the network booked an operating loss of 41 million euros ($50 million), including 9 million euros ($11 million) in restructuring costs and 22 million euros ($27 million) in write-downs on the value of its programming acquisitions.

At the same time the value of its airtime inventory has hemorrhaged, causing RTL to write down the value of its investment in the British subsidiary to just $137 million last year, from $718 million two years ago. As the smallest of Britain's terrestrial nets, Five has been more exposed to the advertising slump and seen its audience share ratings slide. Last year it failed to renegotiate broadcast rights one of its signature shows, "House," which it lost to Sky One.

Chief executive and chair Dawn Airey has nonetheless made a series of high-profile hires, bringing former Sky One head Richard Woolfe and former Channel 4 head of acquisitions Jeff Ford in an effort to boost the business and its original production output.

RTL Group declined to comment on what is said were "speculations" regarding a sale of Five.

Twelve months ago RTL's parent company, Bertelsmann, said that Five in its current form was "unsustainable" and that "a transformation of the business or consolidation is necessary."

Gerhard Zeiler's attempts to repeat RTL's European successes in Britain by building a family of free-to-air broadcasters each targeting different, complementary demographics has largely failed in the U.K. - thanks, in large part, to the power of public broadcasters the BBC and Channel 4 and rapid digitalization in the territory, which has further fragmented audiences.

RTL channels in Germany command a 43.5% share of the territory's advertising market. In Spain the figure is 26%, in France 23%. In the U.K., Five and its digital sister nets account for a paltry 8.4% of overall U.K. ad revenue. Given the size of the U.K. market, Five plays a decidedly minor role on RTL's balance sheet, accounting for just 5.6% of overall revenue at RTL Group last year.

Of much greater significance is FremantleMedia, RTL's U.K.-based production division. The maker of the "X Factor," "Got Talent" and "Pop Idol" formats accounted for around a fifth of RTL's revenue and operating profits last year, which delivered earnings of 155 million euros ($189 million) last year.

Whether Fremantle will also end up on the block remains to be seen.
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