Media Investors, Bright Lights And Fading

Michael Hedges March 17, 2014 Follow on Twitter

Companies move through stages, entirely predictable. Financial investors also have their phases. Circumstances, certainly, dictate much of the flow but, like the sun rises and sets, investors move on to newer opportunities. Companies either evolve or fade away.

A significant chapter in Central and Eastern European media investment has drawn to a close as Central European Media Enterprises (CME) announced that founder Ronald Lauder is stepping down as chairman and leaving the company’s board of directors. From investing in the Czech Republic’s first privately owned television channel to acquiring broadcast assets in Bulgaria, Romania, Slovakia, Slovenia and Croatia, Lauder’s journey traveled the pot-holed road negotiated by many foreign investors in the region. In 2009 communications giant Time Warner became Lauder’s major partner in CME, its influence increasing with its shareholding.

Foreign investment in Central and Eastern Europe became a hot destination for capital as governments looked westward for knowledge transfer and, of course, money. The media sector was hardly a money-spinner during Soviet days. Mr. Lauder knew that would change.

CME was effectively formed in 1994 with the TV Nova investment. At about the same time billionaire John Kluge formed Metromedia International to operate radio stations in Eastern Europe as French publisher Lagardère acquired dozens of stations. Earlier Henry Sloan formed SBS Broadcasting to hold stakes in Scandinavian broadcast outlets and eventually Eastern Europe. RTL Group came to play and there were others, all chomping at the bit to get into the “wild East.”

For CME those early years were precarious. A dispute with a former Czech partner turned ugly, CME temporarily lost the TV Nova license and Mr. Lauder and CEO Fred Klinkhammer took on the Czech government in arbitration. The settlement cost Czech taxpayers US$350 million and the Czech government liberalized media ownership restrictions.

Moving into Romania 1995, CME invested in Adrian Sarbu’s MediaPro group of television and radio channels, eventually acquiring the company. Mr. Sarbu had been a noted filmmaker in Romania. Eventually he became CME’s president and CEO.

Then the company was embroiled in a dispute with a local partner in Ukraine and, allegedly, a US government investigation into bribery. Like most financial investors, Mr. Lauder, heir to the Estee Lauder cosmetics fortune, wanted a buyer, hopefully at a profit. Henry Sloan’s SBS made an approach in 1999 then backed away.

For the next five years CME’s main activity was negotiating disputes with local partners, governments and fixers. The Ukraine television station – 1+1 – was lost. The last acquisition was a Croatian television license in 2004. Fred Klinkhammer left for IMAX and Michael Garin was named CEO. He left in 2008 on the ascendancy of Adrian Sarbu.

But 2008 was a bad year for everybody. Ad revenues in the region went from bad to worse as CME transitioned from an investment vehicle that happened to be in the television business to a European TV operating company. Mr. Sarbu closed the London headquarters, to the chagrin of many executives, and moved offices to Prague, to the chagrin of Czech TV Nova executives and staff suspicious of everything.

A white-knight did arrive. Time Warner bought a 31% stake in 2009 with an agreement giving Mr. Lauder voting rights until May 2013. Time Warner exercised an option and now holds a 49.9% stake and voting control. Mr. Sarbu was released in August, replaced by co-CEO’s named by Time Warner and sent in to either dress it up for a sell off or merge it completely into Time Warner. It was only a matter of time before Mr. Lauder had a hard cash adult conversation with Jeff Bewkes.

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