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BSkyB, Kirch ax digital sat alliance

LONDON — British Sky Broadcasting has ended its alliance with the Kirch Group to develop digital satellite television in Germany.

The break-up is a major blow both to BSkyB’s ambitions for expansion into continental Europe, and to the prospects for Kirch’s DF1 digital platform.

BSkyB was supposed to be taking a stake of up to 49% in DF1. But in a terse statement Friday, the companies merely said that “they have mutually agreed to terminate their heads of agreement for the establishment of the DF1 pay television platform in Germany because of failure to agree on a number of fundamental issues.”

The main issue was Kirch’s inability to secure a stake for BSkyB in the German pay TV channel Premiere, which is jointly owned by Kirch, Bertelsmann and Canal Plus, and the related failure to sign up Premiere for the DF1 platform.

Instead, Premiere and DF1 remain at loggerheads over the development of the digital TV market. DF1’s service, comprising 25 channels plus pay-per-view, launched last summer, but subscriber figures have so far failed to live up to expectations.

BSkyB is also unhappy that Kirch has not managed to secure carriage for DF1 on Germany’s main cable networks controlled by Deutsche Telekom.

Kirch and BSkyB originally announced last summer that the British satcaster would take up to 49% of DF1, as well as stakes in the Kirch-controlled sports channel DSF and Premiere. The deal was regarded at the time as a knockout blow by the Kirch Group against the digital ambitions of its arch-rival Bertelsmann.

BSkyB had previously been in a joint venture with Bertelsmann and Canal Plus to develop digital TV in Germany, but switched sides because that partnership was failing to make fast enough progress.

But Bertelsmann has had the last laugh by blocking BSkyB’s entry into Premiere, and thus scuttling the entire deal.

The fall-out between BSkyB and Kirch now leaves the British satcaster, which is controlled by Rupert Murdoch’s News Corp., with nowhere else to go in Germany, and few other options in continental Europe.

At the same time, it leaves Kirch on its own to shoulder the entire cost of DF1, which is likely to run into hundreds of millions of dollars. Since the launch in July of DF1, which includes 25 channels plus pay-per-view, it has sold fewer than 30,000 decoders, compared with the 200,000 predicted by this stage. Premiere’s conventional pay TV service has more than 1.5 million subscribers.

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