Euro regulators nix Kirch, CLT merger

DF1 may be downed, mogul hit hard on pay-TV expenditures

BERLIN — In a move expected to shake up the German television industry, European competition authorities have roundly rejected the pay-TV merger proposal of teutonic media giants CLT-Ufa and the Kirch Group.

At a meeting in Brussels on Monday, representatives from European Union member states voted overwhelmingly to support European competition commissioner Karel van Miert’s decision to turn down the plan.

Though lobbyists are attempting to influence the European commissioners before their final vote, the EC is expected to hand down an official rejection of the merger on Wednesday.

The verdict is a serious blow to media mogul Leo Kirch, who has committed an estimated $6 billion over the next decade for pay-TV output deals with the Hollywood majors.

As part of their merger agreement, CLT-Ufa was to shoulder some of Kirch’s digital pay-TV expenditures, including a portion of the DM 1.1 billion ($618 million) in losses run up by digital pay-TV platform DF1.

If the proposed alliance falls through, DF1 will close shop, Kirch Group managing director Dieter Hahn said recently.

But observers speculate that Rupert Murdoch’s BSkyB, which had backed out of a previous agreement to buy a stake in DF1, may be poised to reenter the German pay-TV market — either through DF1 or Premiere.

Last summer, CLT-Ufa and Kirch agreed to buy out Canal Plus’ 37.5% share in Premiere, Germany’s only successful pay-TV web.

But with the collapse of the merger plan, Kirch is left with 25%, CLT-Ufa with 37.5%. The remaining share in Premiere is left open. Murdoch is rumored to be interested in purchasing a piece of Premiere, though CLT-Ufa may resist taking on Murdoch as a shareholder.

In any case, CLT-Ufa will concentrate on building up a digital form of Premiere, CEO Rolf Schmidt-Holtz said last week. Kirch is expected to continue to supply Premiere — which currently has 1.6 million analog subscribers — with programming from his extensive output deals.

Premiere Digital, which went on the market briefly in the fall, has been on hold for the duration of the Commission’s probe.

In a last-ditch effort to gain approval of their pay-TV alliance, CLT-Ufa and Kirch plied the Commission with a list of concessions in recent weeks.

Kirch offered to sell 25% of his film rights to potential competitors, and the would-be partners agreed to surrender a quarter of the shares in BetaResearch, the company which developed the technology for Kirch’s D-Box digital decoder.

Finally, the groups said they would allow private cable companies to package and market their own digital pay-TV channel bouquets.

But Van Miert remained unconvinced that Kirch and CLT-Ufa, already dominant forces in German free TV, would not monopolize the pay-TV market. The groups refused to give in to certain demands made by competitors, including a recent suggestion from cable operators that they be allowed to take apart and repackage Premiere.

If the conditions for approval set by the Commission went too far, Schmidt-Holtz said last week, “then digital pay-TV will no longer be economically feasible.”