German digital truce

BERLIN — After a long and heated battle for control of Germany’s digital pay TV market, Leo Kirch and Bertelsmann have agreed to become equal partners in pay TV channel Premiere.

The Munich-based Kirch Group and CLT-UFA announced on Monday that they both intend to increase their shares in Premiere to 50%. Currently, Kirch holds a 25% stake in the web; while CLT-UFA, a joint venture of Bertelsmann and Luxembourg broadcaster Audiofina, owns 37.5%.

According to Kirch Group rep Johannes Schmitz, France’s paybox Canal Plus is expected to sell its 37.5% share in Premiere — estimated to be worth more than 1 billion marks ($578 million) — to the remaining partners.

The end of the dispute over Premiere is expected to give a much-needed boost to the still-stalled digital pay TV business in Germany.

“Only by combining our forces can the digital market in Germany be developed on an internationally comparable scale in a way that makes economic sense,” CLT-UFA and the Kirch Group said in a joint statement. No financial details of the agreement were released.

As yet, there has been no announcement of a merger of Premiere and rival digital pay TV web DF1. But the partners have agreed to adopt the D-Box set-top digital decoder, currently used by Kirch’s DF1.

Together, Kirch and CLT-UFA expect to offer over 50 specialized channels and pay-per-view services over their platform. More concrete plans will be made known in the coming weeks.

Kirch and CLT-UFA hope their joint technical platform will be accepted by Deutsche Telekom. The telco controls access to Germany’s 17 million cable households and has yet to approve digital pay TV distribution.

“We are engaged in constructive talks with Telekom,” Schmitz told Daily Variety.

Premiere, which carries top sporting events and movies, has 1.5 million analog subscribers. Germany’s only pay TV channel until last summer, Premiere got off to a slow start following its 1991 launch, but has picked up subscribers rapidly over the past two years and is currently on the verge of breaking even.

Although Leo Kirch is one of Premiere’s main content providers, the media magnate launched DF1, the first digital pay TV web in Germany, last July. In an attempt to monopolize the digital TV market in Germany, Kirch has committed to spending around $6 billion on 10-year pay TV output deals with most of the Hollywood majors.

Citing a lack of programming, Bertelsmann canceled plans to start its own digital pay TV channel bouquet in September.

But just when it appeared that Kirch had shaken off the competition, the tide turned. DF1, a platform which offers viewers packages of specialized theme channels and pay-per-view movies, fell far short of the projected 200,000 subscribers by the end of 1996. Currently, DF1 claims to have signed on 40,000 households.

DF1’s failure to gain access to German cable systems has interfered with distribution. But observers believe that DF1 also made marketing mistakes.

With DF1 in trouble, Kirch’s hopes of bringing Premiere onto the DF1 platform on his own terms had faded in recent months. Bertelsmann announced that it would realize its digital ambitions through Premiere —and independently of DF1.

Premiere began digital pilot projects involving 20,000 households in February. Since last fall, DF1 and Premiere have been locked in legal battles over the right to broadcast top-tier movies.

But lately, both sides have admitted that they need each other.

It remains unclear what effect the Premiere agreement will have on Kirch’s holdings in Italian paybox Telepiu. In return for relinquishing its share in Premiere, Canal Plus, which owns 45% of Telepiu, is believed to be interested in buying all or part of Kirch’s 45% stake in Telepiu.

The situation in Italy remains uncertain, however, as local authorities would like an Italian partner to take a majority share in Telepiu. Canal Plus senior VP Intl. Michel Thoulouze is currently in Italy, where it is widely expected that a deal will be struck bringing Italian pubcaster RAI and state telco STET into the Telepiu shareholder lineup. RAI and STET have already formed a digital TV joint venture with the goal of launching a single national digital platform.

(Michael Williams in Paris and Cecilia Zecchinelli in Milan contributed to this report.)

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