Tele Munchen Group takes Europe

Media empire grew from humble beginnings to mega-power

The first thing you notice about the headquarters of the Tele Munchen Group is how small it is: TMG may be one of Europe's largest media conglomerates, but its homebase is three small floors of a nondescript building crammed in between the department stores, cafes and sausage shops of Munich's downtown shopping district.

TMG hasn't moved house since Herbert Kloiber bought what was then a tiny TV production company back in 1977. From here -- 24 Kaufinger Strasse -- Kloiber has built a media empire.

If you are doing business with or in Germany, if you are selling a series to German TV or releasing a film in German cinemas, chances are you'll bump up against the Tele Munchen Group. TMG's operations spread, web-like, throughout the entire industry.

Kloiber's company -- he remains TMG's majority shareholder -- owns Germany's largest multiplex operator (CinemaxX) and one of its leading theatrical distributors (Concorde). It controls German cable channel Tele-5 and Austria's leading commercial network, ATV. Together with Disney, Kloiber's company also holds 32.5% of RTL2, one of Germany's top commercial webs with a 6% share of Germany's key 14-49 demographic. Tele Munchen owns CTM, a leading merchandising company; controls CineMedia, one of Germany's top postproduction firms; and holds 50% in On Demand Deutschland, a VOD joint venture with the On Demand Group. Its production divisions deliver feature films (2003 Venice winner "Rosenstrasse"), 2009 Bavarian comedy hit "Brandner Kaspar"); TV movies and minis -- German action series "Alarmcode 112," Mike Barker's upcoming $25 million two-parter "Moby Dick"; and Emmy-winning recordings of classical music concerts.

But the core of TMG, the base on which Kloiber's empire rests, is the rights business.

"Jew Suss"
 

When it comes to exporting American films and TV series to German-speaking Europe, Kloiber is the world's greatest middleman. He holds German rights to more than 5,000 feature films -- blockbusters such as "Tomb Raider," "Twilight" and "Lord of the Rings" and Oscar winners including "The Queen," "Departed" and "The Hurt Locker" -- and thousands of hours of series including "Without a Trace," "Stargate," "The Closer," "Nip/Tuck" and "King of Queens."

"Essentially, we're a wholesaler," Kloiber explains. "We take the whole package from the studios or independent sellers --all the series, the films, whatever. Then we slice things up and sell them to the retailers -- the television channels."

And TMG sells to everyone. Commercial networks RTL and ProSieben, pubwebs ARD, ZDF and (Austria's) ORF, pay player Sky Deutschland and cable outlets such as Unitymedia and KDG.

"Take a series like (daytime soap) 'The Bold & the Beautiful,' " Kloiber says. "We bought that (from Bill Bell) 25 years ago. Now there are more than 5,800 episodes. It ran on RTL for 10 years, then when it skewed too old for their demographic, it moved to ZDF, where it's been for the last eight years. At our core, we're in the series business. It's cyclical and there are highs and lows, but we can have something like 17 series on air in Germany at any one time."

TMG's precise fortunes may rise and fall with the success of its imported series but Kloiber has cushioned the shock of the cyclical shifts in the rights business by diversifying. Some moves have been logical extensions of TMG's core: Launching distributor Concorde Film in 1980 to exploit theatrical and video rights or setting up CTM to cash in on merchandising revenue for acquired titles -- a strategy currently paying major dividends as CTM handles the merchandising mania in Germany surrounding the "Twilight" franchise.

But like Warren Buffett, the investment guru he credits as one of his main influences, Kloiber has also specialized in value investing: buying into businesses whose asking price is well below their potential.

Sometimes Kloiber has acted like a day-trader, buying then flipping stakes in companies such as German commercial network Sat.1, Canadian producer-distributor Lionsgate and pan-European TV group SBS Broadcasting. He has shown astounding prescience with mega-deals such as his purchase -- with Rupert Murdoch -- of rights to European club soccer tournament the Champions League. Rights the two moguls were able to sell on, together with their jointly owned channel tm3, to Leo Kirch, or his sale, in 1999, of 45% of Tele Munchen to EM.TV, the Munich group then rising like a rocket on the German exchange as investors worldwide inflated the new media bubble. When the bubble burst, Kloiber was able to buy back the stake for a fraction of the $450 million EM.TV had originally paid.

"He's had an almost preternatural sense of when to sell companies," says one German television exec whose company competes with TMG. "His success rate has been phenomenal."



In other cases, Kloiber has bought and held. In 2005 he took advantage of rock-bottom share prices in CinemaxX to seize control and restructure the money-losing German exhibitor. Last year CinemaxX booked a $27 million net profit on revenues of $264 million. Kloiber saw a similar opportunity with the opening of the Austrian commercial television market, launching ATV, Austria's first commercial TV channel, in 2002. ATV has yet to turn a profit, but Kloiber, an Austrian native, is playing the long game and targeting an 8%-10% market share for the channel.

"Brandnar Kaspar"
 

"What makes him unique, and gives TMG its competitive advantage, is how fast he can make decisions," says Ludwig Bauer, managing director at TMG and head of the company's broadcasting operations. "In the time it takes, a most companies to set up a power-point to begin to discuss possible negotiations, Dr. Kloiber has already signed the deal. I've worked at several big broadcasters -- Kabel 1, Pro7, Viva -- and I've never seen anything like it. He just talks to you and then he makes his decision. He's the company. The buck stops with him."

"That's what allowed us to do the output deal with Summit so quickly, the deal that gave us the 'Twilight' franchise," says Thomas Augsberger, head of production company Eden Rock Media and TMG's L.A. representative. "In 2007, shortly after Summit had announced they had financing for their new operation, I called up (Summit co-chairman) Patrick Wachsberger," he recalls. "Kloiber, (TMG managing director) Bernd Schlotterer and (Concorde boss) Markus Zimmer signed off and we closed the deal later that year at the Venice Film Festival. Everyone expected Summit to go with their long-term German partners Constantin, but we were faster."

TMG is fast, but it's also flexible.

In the days when the U.S. studios were looking to do big all-inclusive output deals with German buyers, TMG was there, signing massive multiyear agreements with any and all of the majors. With the rise of the indie giants in the 1990s, TMG did similar output deals with Lakeshore, New Line, Miramax and Morgan Creek, among others. The latter deal gave Concorde its first bona-fide blockbuster in Germany -- "Robin Hood: Prince of Thieves" (1991), and marked its move from art-house operator to mainstream player in the German theatrical market.

By the mid- and late-'90s, outputs were out. The studios were holding back top titles to push through their own international distribution subsidiaries.

TMG adjusted. In 1995 it set up Mutual Films, a joint venture with the BBC and Japan's Toho Towa, to co-produce/co-finance big-budget films -- essentially guaranteeing a portion of a film's budget in exchange for German, U.K. and Japanese rights. The deal gave TMG such titles as "The Jackal" (1997), "Wonder Boys" (2000) and "Tomb Raider" (2001).

But such split-right deals are becoming harder to come by. The majors are producing fewer films and the ones they do, they keep for themselves, while the economic collapse has savaged the mini-majors, leaving little in the way of independent product to buy.

"There's plenty of midrange stuff out there," Concorde head Markus Zimmer says. "But very little with blockbuster potential."



So, again, TMG has changed its model. When a single tentpole title comes up for sale the company snatches it -- see the German all-rights deals with Paramount for "Shutter Island" or with Icon Film for the Mel Gibson prison drama "How I Spent My Summer Vacation."

But to ensure a steady supply of films to feed the TMG pipeline, the company has returned to output deals: It has ones in place with Summit, Marvel Films and MGM. Tele Munchen just inked a new all-rights output agreement with CBS Films, taking all rights in German-speaking Europe for up to seven titles a year budgeted between $20 million and $75 million.

The TMG deal was the only third-party international agreement for the CBS slate. In all other territories outside North America, Sony will handle distribution.

On the television side, TMG has also dramatically changed its strategy to meet new demands. When the studio deals last came up for renewal, broadcasting giants RTL and ProSiebenSat.1 outbid TMG. With the exception of MGM, Hollywood's entire studio output goes to one of the two networks. Adding to TMG's problems is German rights group Telepool, which competes for films to sell to Germany's public channels.

"Things have become a lot harder for the middlemen like Kloiber and Tele Munchen," says Dirk Schweizer, head of acquisitions for RTL. "The competition for U.S. films and series between the major (German) networks has gone up. Pro7 would rather bid more for a (studio) package and make sure we don't get it, then wait and buy individual series from the package separately from Kloiber."

Kloiber won't have access to another studio package for another few years at least, when RTL and Pro7's output deals come up for renewal. Until then, TMG will have to get its series fix elsewhere.

"In general, there are fewer independent series being made which we can buy," says Thomas Muller, head of TV acquisitions and sales at TMG. "So we've had to become more creative to get product."

"Flashpoint"
 

Two years ago, that creativity led to TMG setting up its own world sales operation. TMG International buys all international rights for top series, handing German-speaking territories over to its parent company and selling off the rest. TMG International's catalogue includes "Flashpoint," the CTV/CBS action series, which TMG has sold to more than 100 countries; and the upcoming E1 Entertainment/Syfy mystery skein "Haven," which kicks off international presales at MIP TV.

"The rights business comes and goes in waves," says TMG's No. 2, Bernd Schlotterer. "The important thing is to stay flexible, so you can react quickly to every shift and swell in the market."

TMG is riding high. Despite the global economic downturn, 2009 was one of the best years ever for the company. Revenue came in at close to $400 million, after years of losses, exhibitor CinemaxX was strongly profitable and distribution arm Concorde earned more than $70 million at the German boxoffice, a new company record.

There are still problems to be solved. Both Austrian channel ATV and Germany's Tele-5 continue to lose money, though the latter is forecast to break even this year. TMG's in-house theatrical production is steady -- one to two features annually -- but sleeper success stories such as Margarethe von Trotta's "Vision" and Bavarian comedy "Brandner Kaspar," pale beside the German-language blockbusters that competitor Constantin turns out on a quarterly basis. At the Berlin International Film Festival in February, critics booed TMG's latest cinema effort, the co-production "Jew Suss" from director Oskar Roehler.

"But we're in a very comfortably position," Kloiber says. "We are low on debt: Tele Munchen has less than $100 million in debt, there's no debt at all at CinemaxX and CineMedia. We have plenty of room to take calculated risks where no one is going to get hurt."

Those calculated risks are likely to see Kloiber expand TMG's production business as well as grow the CinemaxX brand. The exhibitor recently raised more than $11 million through a stock issue, cash it will use to upgrade its cinemas to take advantage of the 3D boom.

Forty years on, however, Kloiber and Tele Munchen Group aren't about to reinvent their business. "I have no plans for an IPO, no plans for pay TV," Kloiber says. "One thing I've learned over all these years is that your sphere of competence is small. It's probably smaller than you think."

So while TMG looks set to defend its position as Germany's largest independent media group, expect Kloiber to stay put in that tiny office in downtown Munich.
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