A Tv Tussle Titillates In Prague

It was a beautiful partnership--while it lasted. Six years ago American billionaire Ronald Lauder, an heir to the Estee Lauder cosmetics fortune, became a major investor in TV Nova, the first commercial station in the Czech Republic. His partner in the venture was Vladimir Zelezny, a shrewd and politically well-connected Czech businessman. Zelezny and Lauder have much in common, including a passion for art collecting and Jewish philanthropy. Zelezny ran TV Nova--and using a blend of lowbrow entertainment (including "Baywatch" and naked weather forecasters) and sensationalistic news shows made it an unqualified success. The station gave Zelezny political clout; he personally hosts a popular call-in show called "Ask the Director." And it gave Lauder a solid financial foundation for the TV group he's building in Eastern Europe.

But last spring this potent mix of imported money and local talent exploded. A complex structure that gave Lauder control of the operating company and Zelezny control of the all-important broadcast license is now in shambles. In April a public company named CME--which holds Lauder's TV interests in the region--fired Zelezny for alleged financial improprieties at the operating company, which he ran. Three months later Zelezny retaliated. He cut the switch on the old studios and began broadcasting from a new location, using a new operating company that he had set up. Lauder, who spent about $15 million getting TV Nova started and considerably more on programming, was left out in the cold. TV Nova was CME's glittering star, the firm's one dependable moneymaker. Without it, the company's stock (quoted in New York) has plunged from $30 a share to less than $2, losing about $500 million in market value. Lauder accuses Zelezny of "hijacking" TV Nova and causing "enormous financial damage" to his company.

The former partners are now embroiled in a high-profile legal battle, in which the U.S. government is taking a conspicuous interest. If the case is not resolved soon, there could be serious damage to the Czech Republic's reputation as a safe place for foreign investment. That's certainly Lauder's game plan. A former U.S. ambassador to Austria, Lauder has powerful contacts in Washington, and he's mustering them to try to recoup either the TV station or his investment. In a recent meeting, Secretary of State Madeleine Albright urged Czech Foreign Minister Jan Kavan to treat Lauder's case "very seriously."

Lauder has even confronted Czech Prime Minister Milos Zeman over the matter. Last November, when Zeman made an official visit to Washington, he was greeted by a full-page ad in The Washington Post, paid for by Lauder. The headline read: think twice before you invest in the czech republic. The ad asserted that "Czech business, regulatory and legal practices fall woefully short of international standards." Lauder then confronted Zeman at a Washington reception in the Czech's honor. According to witnesses, the two men had a vigorous 20-minute discussion, during which, Zeman told NEWSWEEK, he charged Lauder with publishing false information in the ads. Zeman asked Lauder to apologize; Lauder refused.

Lauder's interest in Czech television began in 1993, when he was head of the Central European Development Corporation, a private investment company specializing in Central and Southern Europe. It was the original investor in TV Nova and the precursor of CME. According to CME chief Fred Klinkhammer, the Czech Broadcast Council did not want to give a foreign company complete control of TV Nova. So the council ordered two companies to be set up. One, controlled by Zelezny, would hold the station license. The other--called CNTS and controlled by Lauder--would operate the station. According to the original contract, says Klinkhammer, Lauder's company "was granted exclusive use" of Zelezny's license. Zelezny claims that the exclusivity arrangement was only "an understanding," meaning, in his version of events, that TV Nova was not legally bound to Lauder.

Whatever the case, CME has filed lawsuits against Zelezny, accusing him of 140 counts of fraud. The company is also suing the Czech Republic, seeking up to $500 million in damages. Lauder has asked the Czech government to intervene, but it hasn't been much help. "They have done nothing to protect our investments," says Lauder. An international arbitration panel has reviewed the case--and in a preliminary ruling it sided with the American. The panel ordered Zelezny to renew his partnership with Lauder. Zelezny says Czech law makes that impossible.

Outraged, Lauder has hired investigators to scrutinize Zelezny's activities prior to the split. He claims they have turned up some damning evidence. According to CME, Zelezny was angling to grab TV Nova for himself long before he was fired. In late 1998, says Klinkhammer, Zelezny wrote letters to U.S. and German studios, claiming that CNTS (Lauder's company) was no longer in the business of supplying programming to TV Nova. A new company--Zelezny's--would be taking over that job. CME also accuses Zelezny of forging some programming contracts.

Zelezny insists he has done nothing wrong. "If I committed all these crimes," he says, "why aren't I in jail?" (Lauder asks the same question.) Zelezny says CME fired him because he would not sell the company a controlling interest in the broadcast license, and that Lauder threatened to "destroy him" if he failed to deal. Lauder admits that he wanted to merge his company with Zelezny's, but he says the Czech kept backing away. "He was always talking about his desires, and it became obvious what he wanted to do"--take TV Nova for himself.

Zelezny is a powerful man in Prague. He was a dissident, then a government spokesman, before displaying his programming flair at TV Nova. Using German station RTL as his model, he broadcasts crowd-pleasing shows such as weather reports where forecasters slowly dress to match their predictions. TV Nova is the biggest private station in Central Europe, nightly garnering half the Czech audience.

Under pressure from Washington, Czech officials have been casting about for a solution. "The Czech government could fix this if they wanted," says Lauder. "They know what Zelezny did. But they're not willing to take him on." One idea is to sell Lauder a stake in the country's second most popular private TV station, TV Prima. Lauder has said he'd drop his case against the Czech government if CME is allowed to purchase Prima. But approaches to the station's majority owner, the IPB bank, have been rebuffed. And there's another problem: it's widely believed that Zelezny has a big stake in TV Prima. Zelezny says he has no financial interest in that station.

So what's next? Both the arbitration panel and international courts will make final rulings sometime this year. Lauder expects to win and receive a large settlement. But even if that happens, his business ambitions have suffered a serious setback. The same may be said of the Czech Republic's reputation for fair business dealings if it doesn't end this ugly feud soon. ^