Europe’s major media powers are less than a year away from launching a new generation of pay-TV channels in Germany. They are digitally transmitted and bundled into what they call “bouquets.” Their delivery systems have already required hundreds of millions of dollars in infrastructure.
Now the success or failure of these all-or-nothing investments rests in the hands of Hollywood studios, which are still sizing up the new market before naming their price.
At last week’s International Broadcast Exhibit in Berlin, one of the world’s largest electronics fairs, the powerful KirchGruppe dazzled the industry with a live, 27-channel taste of the future. The signals were beamed up to digital satellites from Kirch’s new DM100 million ($67.5 million) uplink station near Munich. Back down in Berlin they were received and decoded via the spanking new, Nokia-manufactured D-Box – the first fully-functioning example of the blue-sky plans every major media company in Europe has been touting for the last two years.
Visitors were treated to an array of screens featuring five channels of near-video-on-demand movies, several channels devoted to various angles of Formula One racing from Belgium and a host of existing channels which had signed on to participate in the test pattern.
But now that Europeans have seen the digital future, they must worry about securing the rights to the American entertainment product essential to making their digital projects profitable. That is now t he over riding concern for Europe’s five pay-TV players – Canal Plus, BSkyB, Nethold, KirchGruppe and CLT Multimedia.
The contest is most dramatic in the biggest market, Germany.
In Hollywood, the deals each studio cuts to license its programming for new pay services will shape its revenue streams for decades and dictate paths of international expansion. In Germany, if not all over the continent, those negotiations could potentially re-draw the map of media power.
Yet Euros are chasing a new commodity whose true value is not yet known and whose ownership is being fiercely guarded these days.
CLT, for example, offered a mock-up simulation of five screens running video-on-demand channels at the Berlin fair, but was still feverishly negotiating to secure even temporary Hollywood studio approval only hours before the exhibit opened, sources say.
Kirch sources admitted similar experiences, and one of the group’s managing directors, Gottfried Zmeck, rolled his eyes with a you-have-no-idea expression before saying simply: “We are very happy to have received permission to show these movies.”
“Programming is the key issue,” said Milton Torres, technical director at Luxembourg-based SES Astra, one of the companies whose digital satellites will rain down new channels and services on paying customers. Torres argued that though Kirch is ahead, t he technical differences among players are vanishing, making software the last, and most important, piece in t he puzzle.
“Kirch has a start,” Torres said, “but it’s not as if t he others have nothing.”
In Germany, CLT is planning a rival bouquet to Kirch. It would use Canal Plus/Bertelsmann’s “smart card” technology which, backed by MMBG, is a subscriber-management, or “gatekeeping,” consortium that includes Canal Plus, CLT, Bertelsmann, Deutsche Telekom, pubcasters ARD and ZDF as well as commercial web RTL. CLT could be as far along as Kirch in a matter of months.
The German contenders realize that film studios are becoming even more tight-fisted about rights licensed to traditional pay broadcasters, like Germany’s Premiere. Whereas normal deals there used to last one year with seven broadcasts, increasingly the studios are terminating the licenses after the last broadcast, one source said.
One of the astounding scenarios conjured by the advance of this digital technology is that new pay services could erase the strong grip on film rights held up until now in Germany by the KirchGruppe. Zmeck said the vast majority of the company’s 15,000 titles were licensed for free TV only or were acquired at a time when no one conceived of the possibilities digital broadcasting is now creating.
Thus, whereas Kirch is a giant in free TV rights, he is a newcomer when it comes to the emerging domain of pay-per-view rights. And lawyers here are convinced that new pay services of the type being tested definitely require a new License, even if their value is not yet precisely known by studios.
The new leverage of Hollywood studios over European players will be of critical use to corporate parents like News Corp., Time-Warner and Viacom as they iron out long-term strategic interests in European channel development.
Speaking confidentially, execs from Viacom, NBC Super Channel and Turner International- all on hand at the tech fair- said that the question of what to license to whom had taken on the highest corporate importance.
Since global entertainment companies want in on the European action, they are likely to wait out digital TV’s early days. But within a couple of years, we are likely to see those giants enter into alliances and migrate their existing European channels to the packages now being developed.