Media venture tests Van Miert

Date: 14/12/1995

By Tim Jones

GERMAN telecommunications and media companies will seek clearance from the European Commission in the coming weeks for the kind of pay-television joint venture previously blocked by the anti-trust authority.

A formal notification of the venture between, among others, media company Bertelsmann, Germany's largest broadcaster Compagnie Luxembourgeoise de Télédiffusion (CLT) and Deutsche Telekom will be made soon, say Commission officials.

To be named Multimedia Betriebsgesellschaft (MMBG), the venture will be a new test of the tough line taken by Competition Commissioner Karel Van Miert in the media sector.

Just last week, the Commission announced it had begun an inquiry into the proposed link-up between Bertelsmann, America Online and Deutsche Telekom to provide an on-line service.

The last two Commission decisions to block mergers have been in the television market because, unlike some other markets, this often remains national in character and open to dominance by one or more large players on the national stage.

In July, the Commission stopped the formation of Nordic Satellite Distribution, a joint venture between Scandinavian media and telephone companies, on the grounds that it would dominate the Nordic market.

Similarly, Bertelsmann's last attempt to win clearance for a pay-TV venture was blocked in November last year. This venture, known as Media Services GmbH (MSG), combined Bertelsmann with Deutsche Telekom and media company Kirch, which boasts one of the biggest film libraries in the world.

Van Miert stopped the creation of this alliance last year for fear that it would restrict the entrance of newcomers into this fast-evolving and potentially highly-lucrative market.

Bertelsmann and Kirch already jointly run Germany's only pay-TV station, Première, together with French company Canal Plus.

While the growth of the station's customer base has slowed down to total 930,000, the potential growth in this market is huge once digital television is introduced and the number of channels proliferates.

Apart from the Commission's perception that the companies would increase their strength in service provision, it was feared that they could dominate the market in providing equipment services and make entry on to the market awkward for other firms.

For example, the Commission was concerned that they could have dominated the provision of digital decoders, which are leased to clients to unscramble programmes.

Apart from the two media companies, the Commission argued that the creation of MSG could have allowed Deutsche Telekom to reinforce its already dominant position in the market for cable network services.

Deutsche Telekom controls a cable television network serving 14 million subscribers, as well as the technology necessary to provide interactive services for new systems.

Assurances from the companies involved that they would not discriminate against other pay-TV operators on decoder rental contracts and expand the cable network to ensure full transmission capacity, were not enough to win over the Commission.

Bertelsmann and Deutsche Telekom decided to come back with new partners and a revamped structure for the venture. Under the new grouping, Deutsche Telekom will own 35&percent;, Bertelsmann and CLT 15&percent; each, Canal Plus 7.5&percent; and German television channels ARD, ZDF and RTL also 7.5&percent; each.

The aim of the new venture is to set up a uniform infrastructure for decoders, inventing a box on top of the set that will decode signals, authorise pay-per-view and eventually provide interactive services.

MMBG is intended to create the same kind of venture as the blocked MSG; the combination of a delivery structure with ownership of films. This allows firms to package a variety of interactive services in return for a commensurate fee.

Van Miert's strict application of the Commission's competition rules in this sector is considered inappropriate by some members of the Commission, as well as some industry observers.

They fear that this area of business requires quick decisions by European companies if they are to ensure that the potential of the multimedia sector is not lapped up by the merging US giants.