Six months ago, Bertelsmann seemed to have the world at its feet. Now
Leo Kirch is leading Europe’s digital television revolution, Alasdair
It was perhaps appropriate that KirchGroup chose to launch DF1 at
Hockenheim on 29 July. The race was on in more ways than one. While
Damon Hill was heading for victory in the German Grand Prix, the DF1
roadshow was there to show off the digital technology that could
dominate European broadcasting well into the next century.
There were promotional events, an exhibition stand where potential
subscribers could examine the new D-Box set-top decoders and a large
screen where fans watched the race and saw the enhanced-quality pictures
digital TV offers. The 19-channel DF1 digital package was launched
simultaneously via the Astra 1-D and 1-E satellites.
The launch was backed by a press, poster and television campaign through
the Service Plan agency in Munich, with the total budget for this year
expected to exceed DM30 million (pounds 14 million).
It was deemed a great success. Within two weeks of the Hockenheim race,
more than 100,000 people had called a Freefone number to request more
information. DF1 believes its target of signing up 200,000 subscribers
by the end of the year is realistic.
Subscribers to DF1 are offered a two-tier proposition. The basic 17-
channel package, including MTV, the Discovery Channel, six film channels
- most of which offer ‘classic’ movies - and several children’s
channels, costs DM20 (pounds 9m). For an extra DM10, they receive two
Ten more stations will be launched this autumn. In addition, DF1 is
gradually introducing pay-per-view services.
Exciting stuff. Unless you happen to work for Bertelsmann, that is. Six
months ago, Bertelsmann was leading the German digital race, and held
most of the cards. It had formed a consortium, including KirchGroup and
most of the major players in European broadcasting, and was fine-tuning
its technology before an autumn launch. When Kirch Group - headed by the
maverick German media baron, Leo Kirch - broke ranks to go it alone,
many observers thought it was a foolhardy move. But when Rupert Murdoch
left the consortium to join KirchGroup, they rapidly changed their
minds. BSkyB is now a 49 per cent shareholder in DF1.
Bertelsmann has had other things on its corporate mind. In April, it
signed an agreement to merge its broadcasting division, Ufa, with CLT to
form Europe’s largest broadcasting concern, and it has been working
furiously to complete the deal. Unfortunately, one side-effect of this
merger was to shake loose the last remaining superpower in its digital
consortium - the French pay-TV specialist, Canal Plus. Canal Plus is
talking to both sides but many believe it will plump for KirchGroup.
Throughout July, Bertelsmann tried to pick up the pieces and forge some
form of rapprochement with its former digital allies, while also
insisting that it would continue to develop its own receiver, called the
Media Box, and its own programming plans. So far, only one thing has
emerged from the high-level talks between the two rivals: if and when
Bertelsmann goes ahead, it will use a compatible decoder system and
transmission standard. Subscribers will be able to receive DF1
programmes on the Media Box and Bertelsmann signals will be decoded by
But that’s academic. Bertelsmann has neither the programmes nor the
boxes ready. There is continuing speculation that it will have to merge
its digital interests with DF1.
However, Nikolaus Formanek, head of corporate communications at
Bertelsmann TV and Film Europe, counters: ‘Of course there are talks,
there are always talks. But our plans haven’t changed in the slightest.
We are still planning our own decoder and programming.’
Bluster? We shall see. A good analogy is Sky and British Satellite
Broadcasting squaring up to each other in the late 80s. Murdoch beat BSB
to the punch and BSB realised that a war between rival satellite systems
would be so costly that it wasn’t worth trying to win it.
That’s certainly the way German ad agencies see it. ‘Two months ago,
Kirch looked as if he was going to lose. Obviously, now the situation
has changed. This is a big victory for Kirch,’ Ernst Wilhelm Wohler, the
broadcast director of Initiative Media in Hamburg, says. ‘In
advertising-supported television there is only room for two players in
Germany - Kirch and Bertelsmann. In digital subscription TV, there will
only be room for one.’
Kirch has one of Europe’s biggest programme libraries and prolific TV
and film production facilities. Murdoch also controls a vast arsenal of
programming. However, Bertelsmann isn’t that far behind and Ufa-CLT has
been in talks with the big film studios about buying material for
digital broadcast. For instance, its main German channel, RTL, recently
tried to extend its long-standing relationship with MCA/Universal by
offering the studio dollars 900 million for 15 new films a year over a
five-year period. Its film channel, Club RTL, will have a big part to
play in the company’s digital offer, whichever route it chooses to go
down. Bertelsman is also a shareholder, alongside Kirch, in Premiere,
and is believed to be interested in increasing the channel’s sports
coverage before a digital upgrade. Lastly, RTL has also been trying to
strengthen its links with the world’s biggest media owner, Turner-
But even here, Kirch has its nose in front. Just days before the DF1
launch, Kirch signed an dollars 800 million long-term licensing deal
with Warner Brothers International. The agreement gives Kirch immediate
access to Warner films that were released last year and Time-Warner an
option to acquire an equity stake in DF1. The Warner television channel,
WBTV, will be added to DF1’s basic subscription tier.
Not content with that, Kirch also increased the bidding with
MCA/Universal by offering dollars 1 billion for a long-term rights
agreement. Although the details have not been disclosed, it is worth
assuming that the deal will edge RTL out of the picture.
For many, this bidding war strengthens their sense of deja vu - BSB
promised to throw similarly astronomical sums of money at film studios
in the late 80s, but the sums just didn’t add up. Some commentators
wonder whether the same might not be true about the digital race in
The D-Box decoders retail at DM890 (pounds 400), which isn’t cheap, even
for affluent, techno-loving Germans. The boxes were only available in
250 shops at launch and, although this is set to rise to 2,500 outlets
by the end of the summer, many observers question whether anything like
100,000 units can be shifted by Christmas. At the moment, only one
manufacturer - a subsidiary of the Vebacom telecommunications group -
is supplying boxes. Only when there is competition between manufacturers
will the number of boxes rise.
Digital signals will not be transmitted over cable networks in the
immediate future. More than 60 per cent of German households are cabled
and they are not going to buy satellite dishes just so that they can get
digital pictures. The Kirch Group estimates that DF1 will not be
profitable until it has attracted three million subscribers. It could
take a long time.
David Linn, the broadcast director of HMS Carat in Wiesbaden, says that
advertisers shouldn’t be worried about losing viewers to pay-per-view
services in the medium term. ‘Even when DF1 succeeds in getting three
million subscribers, those subscribers will only devote 20 per cent of
their time to it, if the patterns we’ve seen for existing subscription
services are anything to go by. That’s the equivalent to losing a
potential 600,000 viewers in a country that has an adult TV audience of
60 million. That isn’t exactly the stuff that turns the world on its
head,’ he points out.
Linn believes the jury will be out until things settle down, especially
regarding the channel line-up.
The Premiere channel could be the key to this. Delivered in conventional
analogue format on cable and satellite systems, Premiere is a
subscription channel with a customer base of one million. Unfortunately,
it is owned by both Kirch and Bertelsmann and a tug of war is already
developing. However, a well-managed upgrade to digital could help
maximise the new technology’s potential in this start-up phase. The two
sides will have to reach an understanding before that can happen.
Linn adds: ‘The fact that both sides have agreed a compatible
transmission standard is a great step forward because everyone thought
that if there were two competing systems, it would create consumer
uncertainty, which in turn would have paralysed the market. No-one
doubts that in the future everything will go digital.’
This, of course, is the heart of the matter. Digital will offer almost
infinite channel capacity, high-quality wide-screen pictures and ever
more sophisticated pay-per-view and subscription management systems. In
the not too distant future, all new TV sets will have in-built digital
decoders. But, in the medium term, access to the digital audience will
be controlled by its pioneers.
The rewards could be huge. In Germany, for instance, many broadcasters
may end up using the DF1 platform to launch digital channels, but Kirch
and Murdoch will be collecting the subscription revenues on their
behalf. That will put them in a very powerful position. And they will
almost certainly export the lessons they learn in Germany to other
markets. Kirch has links with Nethold, which has subscription TV
interests in the Netherlands and Scandinavia, and the two companies
control the Italian Telepiu pay-TV operation, which is also planning to
go digital in the near future. Murdoch, of course, has BSkyB, and
worries have already been raised that he will seek to control the
digital market in the UK.
The gamble is whether Europe’s consumers want digital pictures and
whether they are ready to pay for them. The odds look good.
This article was first published on Campaign