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
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
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