CAMPAIGN REPORT ON GERMANY: EU to decide digital TV future. Richard Cook assesses the difficulties faced by digital TV bosses in Germany as they struggle to develop their products against a background of confusion

By RICHARD COOK, campaignlive.co.uk, Friday, 17 April 1998 12:00AM

All the old cast-iron certainties and many of the familiar prejudices in Europe have taken quite a beating in recent years.

All the old cast-iron certainties and many of the familiar

prejudices in Europe have taken quite a beating in recent years.



Nowadays, only football commentators can get away with using convenient

racial shorthands such as ’Gallic flair’ or ’Teutonic efficiency’.

Across Europe, nothing is quite what it used to be.



Although the German economy is still growing at around 2 per cent a

year, this is due to strong exports - themselves a function of the

relatively weak Deutschemark. Domestic demand is perilously weak and

unemployment is soaring. It’s not an attractive background for a new

media venture but it’s just one of the many reasons why digital

television - which Germany has led the technological development of for

the past decade - has been a convoluted and unprofitable mess for some

years.



It’s a mess that is only now just starting to unravel - gently - pending

an EU intervention that has already forced the principal players to

reconsider their approaches more than once.



’Kirch’s 31-channel digital pay TV service, DF1, launched in July 1996

and, on paper, looked a good idea,’ Adam Smith, author of the latest

Zenith Media analysis of the German TV market, says.



’Eleven million existing dish homes across Austria and Germany were

tempted to upgrade with the sort of high-quality film and sports rights

associated with Kirch. But the welter of existing free TV killed it and,

by mid 1997, DF1 was said to be adding losses of DM1 million per day to

start-up and other costs of DM 1 billion. And it had only had 40,000

subscribers.’



An additional problem with this pioneering pay digital service was the

fact Kirch never managed to agree terms with Deutsche Telekom for cable

distribution, so it became a satellite-only proposition. The necessary

decoders were available to buy at DM900, an already high figure which

increased by a further third in June 1997.



Meanwhile, the Bertelsmann, Canal Plus and Kirch-owned sports and movie

analogue pay TV channel, Premiere, which had painstakingly built up its

own audience to more than one-and-a-half million homes since its 1991

launch, had initiated its own digital trial. It offered the normal

Premiere channel and four further pay-per-view channels in 20,000

digital homes, with results that fell some way short of disappointing.

It confirmed DF1’s experience - that no-one was as yet interested in

investing in digital for the sake of its sharper picture and better

sound; content alone would drive digital forward.



Digital development, in short, seemed to have reached an unfortunate

impasse in Germany. Without cable distribution it was never going to

achieve the sort of critical mass that would enable it both to invest

heavily in event programming and reduce take-up costs. In the meantime,

the meter was running for Kirch at a prohibitive rate.



Bertelsmann might have sat back and enjoyed its rival’s discomfort were

it not for the fact that the two media giants were unlikely partners in

Premiere. And Kirch was using its 25 per cent stake to veto major

programme purchases. Worse, it was negotiating for the 37 per cent stake

in the channel owned by the struggling French broadcaster, Canal Plus, a

stake that would see it gain overall control. Bertelsmann responded by

slapping lawsuits on DF1.



An end to hostilities was finally negotiated in June last year, when the

two agreed to split ownership of Premiere and incorporate it as a

premium channel on Kirch’s digital platform, DF1. This was the sort of

coup digital desperately needed. Premiere controlled the rights to the

Bundesliga, and the story of what BSkyB achieved on the back of Premier

League rights is now engraved in every media mogul’s heart. A figure of

three million homes for digital penetration by the year 2000 was

conjured up and the digital future in Germany started to look rosy.



Everyone should have known better. The Kartellamt, the German equivalent

of the Monopolies and Mergers Commission, looked at the deal as everyone

had known it must. What surprised many was the ferocity of the body’s

opposition to the process. By December, the two parties had agreed to

halt sales of Kirch’s set-top digital decoder (the d-box) after pressure

from the Kartellamt and promised to halt developments of the service

pending a legislative decision. In January, the Kartellamt went public

on some of its objections, chief among them the fact that by combining

all their hitherto competing channels, the two partners would enjoy

impressive programme purchasing power; that the set-top decoders should

be made by a variety of companies once a digital specification had been

agreed on; and that it was unacceptable for one alliance to speak for a

staggering 90 per cent of all TV ad revenues in Germany.



But the matter is already out of the Kartellamt’s hands. The EU

investigated the alliance and will pronounce next month. In the

meantime, six of the 16 regional media authorities in Germany won’t

carry any signals until the matter is settled.



In the two-month window between the d-box being developed and the

Kartellamt intervention, around 130,000 decoders were sold. These can

continue to receive the service and are, so far, the only fortunate

recipients of some of the millions Kirch has invested in programming for

a digital service that did no less than lead the world when it launched

in 1996.



This article was first published on campaignlive.co.uk

X

You must log in to use Clip & Save

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Additional Information

Campaign Jobs