Alasdair Reid reports on the race to control the digital broadcast arena and the technology that will run it.
German newspapers have been billing it as the clash of the Titans:
Bertelsmann versus Leo Kirch, the multinational corporation versus the
streetwise wheeler dealer. The prize, as the hyperbole would have it, is
the future of German broadcasting.
The real issue at stake here is control of digital broadcasting. Digital
technology will bring vast channel capacity, high-definition pictures
and, perhaps more importantly, new opportunities to introduce pay-per-
view and subscription channels. The winner in this race will control the
technology, dictate who can use it and collect the subscriptions.
Bertelsmann is ahead. The recent merger of its television and radio
businesses with Compagnie Luxembourgeoise de Telediffusion, the
Luxembourg-based media group, has created Europe’s biggest broadcaster.
Mark Wossner, Bertelsmann’s president and chief executive, has described
the deal, which will create a company with sales of more than DM5
billion (pounds 2.2 billion), as a ‘historic milestone’ which ‘will
enable European broadcasters to compete more effectively with other
global alliances’. The merger has resulted in the world’s biggest media
group after that of the US deal between Time Warner and Disney/ABC. It
is expected to strengthen Bertelsmann’s hand in its showdown with Kirch
over who controls what in the German Pay-TV market.
Bertelsmann has also been developing decoder equipment - called Media
Box - in partnership with the French pay-TV pioneer, Canal Plus, and is
on the verge of forming a company, MMBG (Multimedia-
Betriebsgesellschaft), to develop channel plans and market the equipment
when it’s ready. The main shareholder in MMBG will be Deutsche Telekom -
but Bertelsmann will have a stake along with a number of other media
companies including CLT, Canal Plus, RTL and the German state-owned
broadcasters, ARD and ZDF.
‘We want to create the standard and make it accessible to everyone,’
Nikolaus Formanek, head of corporate communications at Bertelsmann
TV/Film Europe, says. ‘We want to make sure that we can create a market
in the first place. We don’t want this to turn into a battle.’
Kirch does not see it that way. He has already been showing off
prototypes of his rival decoder, D-Box, and the Kirch Group has taken
options on six transponders on the new Astra digital satellites, which
will be operational this summer.
The D-Box is also important for the Kirch Group’s broader pay-TV
interests. It is a major shareholder in the Swiss-German pay-TV
operation, Teleclub, as well as its Italian equivalent, Telepiu. Telepiu
is an ambitious operation and the D-Box is central to its future plans
to go digital. The plot thickens, though. The ideal German channel for
digital upgrade is Premiere, the country’s main existing subscription
channel. Premiere is owned by Canal Plus, Bertelsmann, the UK’s BSkyB
and, yes, the Kirch Group. They each have a 25 per cent stake.
Both Kirch and MMBG say that they will have their systems ready for
testing this summer and are gearing up for a massive marketing blitz
this Christmas. German commentators believe that it’s going to be a bit
like the battle between VHS and Betamax in the video recorder market;
but a better analogy can be found closer to home - Rupert Murdoch
squaring up to British Satellite Broadcasting for control of the UK
satellite business at the start of this decade.
We all know what happened there, and perhaps an eventual merger is the
likeliest outcome of the German contest - especially if, as many
predict, creating a market for the new technology turns out to be a
long, hard slog.
But does Germany need more TV channels?
During the 80s, the German government backed plans to accelerate the
growth of cable, with the result that 60 per cent of households are now
hooked up, and 10 per cent have satellite dishes.
In the wake of cabling came broadcast deregulation and the existing
state networks were joined by the first wave of private commercial
channels - RTL Plus, Sat-1 and Pro-7. These new channels did so well
that a second wave was triggered, including thematic stations like n-tv
(news), DSF (sport) and more ambitious affairs like a second channel
from RTL. The German market also attracted outside interest, with pan-
European operations like NBC Superchannel, Eurosport and MTV keen to
have a presence. The result is that the cable systems have reached
capacity and some of the pan-European channels are being squeezed out.
A good argument, you might think, for the new capacity that digital will
bring. Well, not entirely. The German market has reached saturation
point in more ways than one - these days, there isn’t enough revenue or
audience to go round. During the boom years revenue grew by leaps and
bounds, but for the past three years growth has been less than 10 per
cent a year. For 1996, the predictions are that there will be no growth
The result is that the smaller stations are struggling (RTL, Sat-1 and
Pro-7 now take 80 per cent of all TV revenue, so there isn’t much left
to fight for). And the state-owned networks, ARD and ZDF, which survive
on advertising as well as licence fee revenue, face disaster. Before
deregulation they took combined advertising revenues of DM2 billion. Now
they are taking a paltry DM600 million.
Advertisers and agencies are not keen to see audiences migrating to
subscription channels, where advertising opportunities may be limited.
Those audiences will not only be lost to advertisers but the end result
could be further destabilisation of the marketplace. The market may
harden in cost per thousand terms but that will be of little consolation
to channels that suddenly find themselves with negligible audiences.
Some private channels would be under threat and there would be an
increased possibility of complete meltdown at ARD and ZDF. That, in
turn, would take a large element of choice out of the market.
Ernst Wilhelm Wohler, the broadcast director of Initiative Media in
Hamburg, assesses the situation: ‘More than one successful subscription
channel, might cause problems for advertisers. But is there any real
demand for pay-TV? If there is, then the development of these digital
boxes is very important. But look at Premiere. There are 34 million
households in Germany and it has only sold one million subscriptions.
That isn’t success.’
German agencies believe - or perhaps hope - that digital TV will not
have an impact for at least three years. There are more pressing
concerns, like the impact of other technologies. Agencies worry that
Germans are spending increasing amounts of time with their personal
computers, logging on to the Internet or playing computer games.
It all fuels uncertainty. Wohler says that all of this could lead to a
renaissance in older media, such as posters. But the new technology
won’t go away and Germans are almost guaranteed a digital TV Christmas
this year. Millions of Deutchmarks have already been set aside for the
marketing campaigns. The race is on.
Leo Kirch is sometimes described as ‘Germany’s Rupert Murdoch’ and it’s
certainly true that he provokes similarly strong reactions - you either
love him or hate him. He is streetwise: a tough, opportunistic
businessman who, like Murdoch, stands outside the establishment yet has
powerful political allies both at federal level - he is a close friend
of Chancellor Kohl - and within the Bavarian state government.
Despite the expansion of his media empire in the last decade or so, he
still sees himself primarily as a film and television distributor and
producer. Now aged 69, he entered the business back in 1956 when he
bought the German distribution rights to Fellini’s La Strada. He was
gambling on the possibility that Germany’s new state-run television
service might be interested in running feature films.
It was. Overnight, Kirch had discovered a lucrative new market and in
the decade that followed he succeeded in buying up the rights to a vast
library of German-language and international films. By then, he had
moved into production too, acquiring much of Germany’s answer to
Hollywood - studios around Munich that once launched Garbo and Dietrich.
Through Beta Film, his production company, and Taurus Film, the
distribution arm, Kirch has built an unassailable position in the
German-language programming market. He is also involved in a wide range
of international co-productions.
He survived a bankruptcy scare in the mid-80s and might have gone under
but for the deregulation of German TV and the arrival of new channels
hungry for programming. Kirch is a 43 per cent shareholder in one of the
most successful new channels, Sat-1. His son, Thomas, launched another,
Pro-7, and has gone on to launch more. This is one of the main reasons
that people distrust Leo Kirch. Although Thomas’s channels are not part
of the Kirch Group, it is assumed that Leo exercises more than a little
control and that Thomas is nominally in charge to circumvent laws that
restrict concentration of ownership.
The other source of disquiet is Leo’s relationship with Axel Springer
Verlag, the biggest newspaper group in Europe (it publishes Bild, Die
Welt and a range of regional titles), which is also the other major
shareholder in Sat-1. Kirch took a stake in Springer in the late 80s and
promptly mounted a full takeover bid, causing a political storm, with
concentration of ownership again an issue. After a protracted legal
battle, Kirch backed down; but he still owns 35 per cent of Springer.
Many on the political left believe that he has far too much influence on
Despite the power he wields, Kirch is rarely seen in public or in the
media - until recently. The fact that he has adopted such a high profile
to promote his D-Box system indicates just how seriously he takes the
Bertelsmann is one of the world’s media giants: its record 1994-95
turnover of dollars 14.6 billion puts it second only to Time-Warner on
the global stage. Though it dominates several sectors of its home
market, especially magazines, only a third of that turnover comes from
Germany, with the remainder coming from the rest of Europe (a third),
the US (25 per cent) and Pacific Rim markets.
It is a classic multinational corporation. But as with Kirch, the
importance of the digital race has forced senior executives to raise
their heads above the parapet in recent times. Even the president and
chief executive, Mark Wossner, has been featured in the press, showing
off Media Box, its digital television decoder equipment prototype. He
almost certainly felt uncomfortable about the whole experience - he’s
very much a reserved and formal backroom man.
To see these virtues as a sign of weakness would be a mistake.
Bertelsmann should not be underestimated. Until ten years ago, it was
primarily a print-based company. It owns Gruner and Jahr, which has a
significant presence in the US (McCall’s and Family Circle, for
instance) and in all of the major European countries (Prima, Best and
Focus in the UK), as well as dominating the German market, where its
best-known title is Stern. It also owns Bantam Doubleday Dell, which
makes it one of the world’s biggest book publishers, and RCA, which
makes it a major player in the music industry.
But its recent strategic merger of its television and radio businesses
with Compagnie Luxembourgeoise de Telediffusion and its expansion into
multimedia is what has silenced potential critics. Bertelsmann was one
of the first companies to take advantage of TV deregulation with the
launch, in partnership with the Luxembourg-based media giant, CLT, of
RTL Plus. RTL TV, as it has been renamed, is now the undisputed market
leader, just shading Kirch’s Sat-1 in terms of audience and revenue.
Bertelsmann is also a shareholder in RTL 2, Vox (an ‘infotainment’
channel run in partnership with Rupert Murdoch) and Premiere, Germany’s
main subscription channel. Its UFA TV production division makes
Germany’s most popular TV soaps and is a serious rival to Kirch.
Bertelsmann is also committed to the development of leading-edge
technologies. In March it signed a joint-venture agreement with the US
Internet service provider, America Online. Through MMBG, the joint
venture company formed to develop digital TV in Germany, it already has
a powerful network of alliances with some of Europe’s top media
In short, Bertelsmann may be big, but it is certainly no dinosaur. As
one company source puts it: ‘Wossner is not a fighter in the way that
Kirch is. But compared with Bertelsmann, Kirch is tiny. We have no need
to be afraid.’