Merger blocked

Commission halts Kirch, CLT-Ufa venture

BERLIN — After weeks of frantic negotiations, the verdict is in: The European Commission has blocked the German pay TV merger of media giants Kirch and Bertelsmann-affiliated CLT-Ufa.

Kirch reps, however, are already saying that the partners may submit a new application for approval.

“The Commission has just unanimously decided to ban the venture of Deutsche Telekom, Bertelsmann and the Kirch Group,” European competition commissioner Karel Van Miert said at a press conference Wednesday in Brussels. “That means a formal decision has today been taken.”

After antitrust representatives from the European states voted Monday to support Van Miert’s decision to reject the alliance, media magnate Leo Kirch, Bertelsmann board member Michael Dornemann and execs from telco Deutsche Telekom (a partner in the technical platform) met with Van Miert to hammer out a last-minute compromise before the final vote of the commissioners.

Kirch and Telekom accepted a set of conditions offered by Van Miert on Tuesday, but Bertelsmann rejected the plan saying it would undermine the profitability of pay TV web Premiere.

The Commission made a last attempt to find a solution “that would meet our concerns regarding competition,” Van Miert told reporters. “I went as far as to make a verbal proposal that was accepted by Mr. Kirch, but totally refused by Bertelsmann.”

In the final stage of negotiations, Van Miert reportedly said he would permit Kirch’s D-Box digital decoder to set the standard in Germany, and conceded Premiere’s right to determine which channels could enter its digital bouquet.

But included in the compromise were conditions that Premiere make its subscriber lists available to competitors, and allow private cable TV operators to take apart and repackage Premiere programming.

Subsidize the competition

For CLT-Ufa, these conditions were unacceptable. “We would have been forced to subsidize our competitors,” says Michael Dornemann.

The Bertelsmann exec blames Van Miert for the deal’s collapse: “The digital TV merger did not fall through as a result of Bertelsmann’s (refusal to compromise), but due to the excessive demands of competition commissioner Van Miert.” To an astonishing degree, Dornemann charges, the commissioner “adopted the arguments of competitors and opponents of the merger.”

“Despite the EC’s decision, Premiere will remain the leader in the development of digital television in Germany,” said CLT-Ufa president and CEO Rolf Schmidt-Holtz.

Remaining committed

The Kirch Group also said Wednesday that it “remains committed to developing (a digital form of) Premiere together with partner CLT-Ufa.”

Kirch, who spent an estimated $6 billion cornering all the choice output deals with the Hollywood majors, is expected to continue to supply Premiere with programming.

But this does not mean that Premiere will emerge unscathed from the wreckage of the deal.

“All the agreements with Kirch and Telekom will have to be renegotiated,” CLT-Ufa spokesman Matthias Wulff told Daily Variety. “The programming concept of Premiere Digital will have to be reworked. This will slow things down considerably.”

New application pending

For now, Kirch seems unwilling to accept the Commission’s decision as final: “Together with its partners, the Kirch Group is prepared to submit a new application in Brussels on the basis of the recently negotiated compromise,” the company said in a statement.

As part of its arrangement with CLT-Ufa, Premiere was to take over Kirch’s failing DF1 digital pay TV platform. The Kirch Group “sees no further economic basis for continuing to operate DF1 on its own,” according to the statement.

For the time being, however, “DF1 will remain on the air in the interest of DF1 customers and in view of the possibility of a new merger application.”

Wulff, however, said that CLT-Ufa will not veer from its current stand and has no intention of submitting further applications to the Commission.

Kirch and CLT-Ufa agreed last July to end their battle for control of the German pay TV market. Kirch brought his extensive programming rights and decoder technology to the deal, while CLT-Ufa gave Kirch access to Premiere’s 1.6 million subscribers.

CLT-Ufa also agreed to shoulder a part of the $625 million in debt accrued by DF1. The collapse of the agreement could signal serious financial difficulties for Kirch.

With a 37.5% share in Premiere open and DF1 on the verge of bankruptcy, foreign investors — possibly Rupert Murdoch — are expected to appear on the scene.

At the moment, Premiere appears to be the only pay TV game in town. But Wulff dismisses interpretations by some observers that Bertelsmann has won and Kirch has lost as a consequence of Van Miert’s decision: “We have all lost something: Kirch, CLT-Ufa, and the Commission.”

Only the merger’s original opponents are cheering. German pubcaster ARD had protested the alliance in Brussels, arguing the media groups would monopolize access to digital TV. “The decision from Brussels must be painful for Bertelsmann, Kirch and Telekom,” ARD managing director Udo Reiter allows.

“On the other hand,” he added, “it offers a chance for digital television in Germany to get off to a new start with free competition and fair conditions for all.”