Digital TV: the calm before and after the storm.

To many observers of the German media, the current quarrels over the introduction of digital television resemble a Greek tragedy. "The wrangling for competence and interests in politics and business will disturb any quick success of digital television in the country," the industry magazine Blickpunkt: Film commented recently.

As the media giants Kirch and Bertelsmann work together to launch their upcoming digital pay-TV platform, their troubles are increasing. A scenario in which consumers will have more choice in the future has given way to questions about a possible monopoly.

Kirch and Bertelsmann decided to bury the hatchet and join forces last summer. Kirch's digital pay-TV project, DF1, had just gone down the drain one year after its summer 1996 launch; the failure was due to lack of interest from an audience that wasn't very keen on Westerns and other old-fashioned fare. The two companies decided to focus on their common pay-TV channel, Premiere, of which each owns 50 percent. DF1 was supposed to merge into Premiere, retaining its own brand name within the common platform.

But the idea met with heavy opposition from the European Commission and its antitrust commissioner, Karel van Miert. He was particularly furious when "Bertelkirch" - as the German papers like to call the new friends - began to sell its digital decoder, the d-box developed by Kirch subsidiary Beta Research and manufactured by Finland's Nokia. In December, when the "new television" was supposed to arrive in thousands of German homes as a Christmas present, van Miert prohibited further sales of the d-box, criticizing the media companies for giving the public the impression that there was a decoder standard and that they had a monopoly position before the antitrust investigation had been completed. Despite the intervention of Chancellor Helmut Kohl on their behalf, the two giants were forced to comply with van Miert's directive, losing an estimated 150 million marks (U.S.$80 million) in the process.

One of the obstacles to the introduction of digital television in Germany was the fact that until recently the various broadcasters had not been able to agree on a common standard. In the beginning, Bertelsmann and Kirch competed with two different decoder models. Even after they and public broadcaster ZDF agreed to adopt Kirch's d-box, the other public broadcaster, ARD, refused to accept a technology that it feared might neglect the interests of stations outside the Kirch and Bertelsmann empires. There were grounds for this fear: 90 percent of Germany's commercial TV stations are controlled by the two media giants. On February 25, ARD finally agreed to implement the d-box, but only on the condition that the antitrust officials give their permission to the deal.

Van Miert is also troubled by the role of the Deutsche Telekom, the communications company that lost its monopoly at the end of last year. Deutsche Telekom still controls the distribution of all the programming on its nationwide cable network and owns a big stake in Kirch's Beta Research. Van Miert sees "enormous competition problems that could arise in the German pay-TV market and - because of the Telekom's participation - also the cable market" In an interview in the German daily Berliner Zeitung, van Miert expressed the fear that Premiere would become the only digital platform for payTV in Germany and thus would be able to dictate the conditions for other broadcasters' entry into the market. Many broadcasters, including ARD, will be affected if there is not "undiscriminating" access to the digital platform for all.

The European Commission, which wants to decide the case in June, is backed by the German antitrust commission, which said in a public statement that it would prohibit cooperation between Bertelsmann and Kirch.

In mid-February another bomb exploded in the Bertelsmann's backyard: the news magazine Der Spiegel reported that Bertelsmann CEO Mark Woessner, with Kirch's blessing, would coordinate and take control of the free TV activities of both companies. In a newspaper interview, Woessner responded that the coordination between pay-TV and free TV would be limited to the stations of his own company. He criticized the antitrust officials in Brussels, calling them "not customer oriented, not technology-friendly."

Woessner also dismissed the accusation that the two companies would continue their cooperation even if the European Commission forbid it. "If the alliance is refused, that would mean the end of the merger between DF1 and Premiere," he said. In that event, things would go on as they did before: there would be one strong pay-TV channel, Premiere. It is unclear whether Kirch would be able to withdraw from his agreements (e.g., to provide Premiere with blockbuster movies). Such a split would certainly mean the end of DF1.

In the meantime, the cost of the decoders is expected to drop from the current price of roughly 1,000 marks (U.S.$550). Kirch decided that Nokia should produce the first million d-boxes; however, after those are sold he wants to give the license to 50 other manufacturers, including Thomson, Philips and Grundig. However, these new devices will not be available before 1999.

It still remains to be seen whether digital pay-TV will take off in Germany. So far 1.6 million subscribers pay roughly 50 marks (U.S.$27) each for the simple Premiere service. Bertelsmann, which transferred its digital pay-TV activities to CLT-UFA, wants to expand its pay-TV ventures to include several dozen special interest channels, including sports and pay-per-view channels. CLT-UFA hopes to have a total of four million subscribers by 2002, thus garnering a surplus of 400 million marks (U.S.$220 million). However, the company's annual report indicates that it will lose roughly 2.5 billion marks (U.S.$1.5 billion) between now and 2002.