Pay TV succeeding with viewers

BERLIN – A cable monopoly is taking form in Germany that could soon change the face of the country’s TV landscape.

Kabel Deutschland, born last year following the acquisition of six Deutsche Telekom regional cable franchises by equity investors APAX, GS Capital Partners and Providence Equity Partners, has started rolling out its new broadband cable grid in cities including Berlin, Bayreuth, Leipzig and Munich.

It looks set to take over a seventh regional provider — Ish in North Rhine-Westphalia — and is eyeing the two remaining, Iesy in the state of Hesse and Kabel Baden-Wurttemberg.

The takeover of Ish, which has 4 million customers, would give Kabel Deutschland some 14 million cable households.

Kabel Deutschland reportedly is prepared to pay E2.75 billion ($3.37 billion) for the three companies, including $1.7 billion for Ish alone. If successful, Kabel Deutschland will end up with all of the cable pipes originally owned and operated by Deutsche Telekom.

Ish is owned by a consortium of 38 banks that will review the offer later this month, but Deutsche Bank and Citigroup are said to have already blessed the deal.

Many in the industry see consolidation as necessary for the continued modernization of the nationwide cable grid. With one company in charge, the digital upgrade is expected to be more efficiently and uniformly carried out than would be the case if the patchwork of state and regional cablers were forced to modernize assets on their own.

However, Germany’s monopoly-wary media watchdogs have cautioned that consolidation could eventually be detrimental to technical upgrades by eliminating competition. No competition means no investment, the theory goes.

But Kabel Deutschland has a solid chance of consolidating the market. The group has been carefully preparing for the acquisitions of Iesy and Kabel BW and has sent a team of legal experts to confer with European and German antitrust regulators to ease the way.

Yet the general acceptance of digital cable remains a big question mark.

Of the country’s 20 million cable households, only about 4 million have been upgraded to new digital standards. And Kabel Deutschland’s digital TV bouquet, which rolls out in April, won’t differ much initially from what cable viewers already receive — but it will be more expensive.

Viewers must buy a digital receiver, which will cost between $50 and $100, and pay a one-time turn-on fee of around $50. The minimum package will be between $15 and $20 a month, similar to existing rates.

Ish started introducing its digital offering in North Rhine-Westphalia late last year, but only about a quarter of its subscribers can get it due to the limited technical infrastructure. Company is hoping to have digital TV ready for 70% of its subscribers by the end of this year.

Despite the slow pace, the dawning of the digital age has given companies like Haim Saban’s terrestrial broadcasting group ProSiebenSat.1 exciting new possibilities.

Dazzled by the wonders of cinema-on-demand and niche channels galore, ProSiebenSat.1 is itching to get into the pay TV business — so much so that it has started a bidding war with Premiere, the country’s only pay TV platform, for lucrative Bundesliga national league soccer to leverage a possible buyout of the paybox.

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