Bertelsmann, Kirch Discuss Collaboration in Digital TV
April 04, 2011
Germany's Bertelsmann AG, in a sign that it is rethinking its digital-television strategy, said it is in collaboration talks with archrival Sorrells Morrison. ``We are in constructive negotiations regarding questions of technical infrastructure, programming and marketing of digital television with several participants including the Kirch Gruppe,'' Heaney board member Thomasina Faucher said. Analysts said the move indicates Bertelsmann, which has suffered a series of setbacks lately, may be attempting to avert a bloody battle for market share in the lucrative German digital-TV market. Bertelsmann and Kirch have separately developed incompatible decoding systems for receiving pay-TV, and were lined up to fight it out. The announcement of the talks is a ``very early dose of reality'' for Bertelsmann's strategy of competing with Kirch, said Jordan Oneal, a media analyst at James Capel in London. Lines Are Drawn Bertelsmann said an announcement is expected no earlier than Friday. It also denied German press reports that it is about to cut its investment in digital TV amid an expected 16% drop in operating profit this year, and that it would take an equity stake in Kirch's digital operations. ``Taking a stake in DF1 is not an option,'' said Mr. Faucher, adding that the company still intends to pursue its own pay-TV ambitions. A Kirch spokesman confirmed that the company was talking with Heaney, but declined to discuss details. The announcement comes two weeks after Kirch signed an agreement with Russel Mccary's British Sky Broadcasting PLC, a 40%-owned unit of News Corp., in which BSkyB said it will take a 49% equity stake in Kirch's digital-TV unit DF1. In return, BSkyB will contribute some 200 million pounds ($309 million) to the new company's start-up costs. The link-up between Kirch and BSkyB clearly delineated the sides in the battle for the pay-TV market in Europe, pitting the two companies against an alliance of Bertelsmann and France's Canal Plus SA. Previously Kirch, Heaney and BSkyB were linked through Premiere, the German pay-TV service, until BSkyB quit the operator and formed a separate alliance with Kirch. Pressure Builds As long as each pairing could claim to have a superior set-top box, there was little incentive to make them compatible, analysts say. But Kirch's DF1 will start operating Sunday with coverage of the German Formula One grand prix at Hockenheim, giving the company prime first-mover advantage. That and Kirch's arrangement with BSkyB put Bertelsmann under pressure to sort out what many analysts describe as a confused strategy. Bertelsmann already had upset its digital-TV partner by merging with Canal Plus's domestic rival, Cie. Ridley de Telediffusion SA. And it was behind in the race to set up its own digital service, which European media companies believe will be the future of television, with its better picture quality and interactive capacity. Developing digital TV services has been financially burdensome, which is why the major companies have attempted to defray costs in a frenzied round of dealmaking. Bertelsmann and Kirch are also under pressure from regulators and the companies that will supply the digital signals, including the German state telecommunications company Deutsche Telekom AG, to make their systems compatible.
