INTERNATIONAL BUSINESS : Digital Pay TV Rivalry Roils Europe’s Media Giants

The turmoil over Europe’s fast-emerging, multibillion-dollar digital pay TV market is intensifying.

In recent weeks, media companies have announced programming packages that will bring digital pay TV to Germany, Scandinavia and the Benelux countries--Belgium, the Netherlands and Luxembourg--for the first time this summer.

At the same time, an alliance of media giants aimed at the Continent’s large and lucrative German market has all but collapsed due to internal differences.

Digital TV uses satellites, similar to such services as DirecTV in the U.S., and other related means to beam a signal that can carry large numbers of channels; consumers pay for not only the greater programming, but also higher-quality sound and picture.

The impressive grouping of Rupert Murdoch’s successful BSkyB British pay TV venture, Germany’s largest publishing house, Bertelsmann, and the king of French pay TV, Canal Plus, came together only three months ago amid talk of launching a 100-channel digital package to German viewers by this fall.

Although BSkyB executives refuse to comment publicly on a flurry of media reports that Murdoch will soon pull out of the pact that was once heralded as his long-awaited entry into continental markets, the alliance seemed at the very least in deep trouble.

“Seriously reconsidering” is how one source familiar with the alliance tensions described Murdoch’s present mood. Another, attempting to describe the current state of the alliance, said simply, “It’s still very fluid.”

The Australian American entrepreneur is reportedly angered that Bertelsmann failed to follow through on a commitment he thought he had won from the German company to gain a 25% stake in Germany’s lone existing pay TV venture, Premier. Bertelsmann, along with Canal Plus and German media baron Leo Kirch, now co-own Premier.

Others talk of a massive cultural clash between the freewheeling, do-it-now Murdoch and the staid corporate outlook of Bertelsmann, a company headquartered in the sleepy central German town of Gueterloh and more at home in book publishing than television.

Canal Plus has also had its problems with Bertelsmann. Both Murdoch and Canal Plus were said to be stunned when Bertelsmann struck a deal several weeks ago that effectively gave a Luxembourg-based competitor, Compagnie Luxembourgeoise de Telediffusion, a back-door entry into the alliance.

Despite these tensions, some question whether there is more posturing than purpose in Murdoch’s alleged threats. They describe media reports of his imminent pullout as tactical pressure on Bertelsmann. Others are convinced Murdoch is about to pull the plug.

“The road is littered with bodies who’ve tried to second-guess Murdoch,” commented Robert Jollisse, a media analyst at ABN Amro Hoare-Govett in London. “The fact is, nobody knows what he’s up to.”

As the Murdoch-Bertelsmann-Canal Plus alliance wallowed in uncertainty, its single biggest competitor for the German market, the Leo Kirch group, pushed forward on its own, announcing detailed plans to launch the country’s first digital television station, DF1, late next month and to offer an array of 50 channels by the end of the year.

“DF1 isn’t a new channel, DF1 is new television,” declared Managing Director Gottfried Zmeck at a news conference in Munich, Germany, earlier this month. With a vast library of Hollywood and German-language films, plus a strong sports offering and the rights to programs such as Discovery, Clubhouse and MTV, Kirch has moved into a strong position in a national market that could yield about $2 billion annually in revenue, media analysts believe.

Eight of the new DF1 channels are expected to be devoted to pay-per-view films.

Between the July 28 launch--timed to coincide with the running of the Formula One German Grand Prix--and the end of the year, Kirch group executives predict DF1 will have about 200,000 subscribers. “We consider a figure of 3 million subscribers by the turn of the century as entirely realistic,” Zmeck said.

A few weeks earlier, the Dutch-based pay TV group NetHold announced plans to bundle 16 thematic and premier channels into a digital pay TV package that would be launched this summer in the four Nordic countries of Denmark, Norway, Sweden and Finland. The offerings include three movie and sports channels; channels for weather, travel and arts; plus BET on Jazz International, Bloomberg Information TV, Discovery, CNBC and NBC Super Channel.

NetHold said it would start up a similar package of 15 digital channels in Belgium and the Netherlands, also this summer.

Collectively, the moves by NetHold and Kirch constitute the first broad-scale attempt to bring digital pay TV to the lucrative markets of Northern Europe. So far, only Canal Plus and Italy’s Telepiu have begun transmitting digital pay TV programming on the Continent.

In a related development, there are signs that the major players in Europe’s digital TV market have decided to avoid a Betamax-VHS-type technology war by agreeing to strive for compatibility between differing designs of the decoder boxes viewers must buy to receive the digital signal.

Media analysts had expressed concern that incompatibility of decoders under development by the Kirch group and by a group including Bertelsmann, Canal Plus and Deutsche Telekom, would confuse and possibly alienate consumers, dampening the potential market. Decoders are expected to retail for $750 to $900.

“It will give competitors less control over their subscribers, but it’s a big step forward if you’re talking about developing European audiences,” said Jay Stewart, who follows the industry for Kagan World Media in London. “It’s an important development.”