Premiere World gets closer to takeover by BskyB

The future of Germany’s pay-TV market might lie in the hands of BSkyB. There is growing speculation in the German media industry about the consequences of a clause which is part of the contract signed last year between the UK-based pay-TV operator and Kirch Pay-TV, the company which owns and operates Premiere World, the only digital pay-TV platform in Germany and Austria.

As part of the deal in which BSkyB acquired a 24 per cent stake in Kirch Pay-TV, thereby giving the loss-making company a much needed cash injection of DM 1 billion (E511.29m), BSkyB was granted far reaching guarantees regarding the development of the subscriber figures. Although Premiere World persists not to officially elaborate on contractual details, industry sources point to the delicate clause part of the agreement that was reached between Kirch Group’s head Leo Kirch and Rupert Murdoch, whose News Corporation owns the major BSkyB stake, in autumn 1999 and signed in April 2000.

The unconfirmed clause guarantees Murdoch that Premiere World will have reached four million subscribers and financial break-even in 2002. If those projections are undercut by 20 per cent or more, then BSkyB can either retreat from Kirch Pay-TV and receive its investment back in cash plus interest rates or, if Kirch isn’t able or willing to buy out BSkyB, then the latter gets the right to take over the majority in Kirch Pay-TV and, in consequence, control Premiere World.

After capital increases performed last year to include Kingdom Holdings, Capital Research and Lehman Brothers as shareholders, Kirch Pay-TV is currently owned in majority by Kirch Holding (69.75 per cent) with BSkyB having the second largest stake (22.03 per cent), followed by Saudi-Arabian Prince Al-Waleed’s Kingdom Holdings (3.12 per cent) and US investment groups Capital Research (2.7 per cent) and Lehman Brothers (2.4 per cent).

With subscriber numbers continuing to stagnate despite heavily promoted marketing campaigns, even during the important pre-Christmas period, which usually boosts pay-TV subscription numbers in other countries, most media observers don’t see any light for Kirch at the end of the tunnel. Premiere World seems destined to be taken over by BSkyB if the subscriber uptake continues to remain below the expectations.

In September 2000 Markus Tellenbach, then chairman of Kirch Pay-TV, had to concede that his continuously repeated strategic goal to reach 2.9 million subscribers until the end of 2000 can’t be reached. At this time, the customer base stagnated at 2.2 million with 1.6 million subscribing to the digital package and the remaining households sticking with the analogue stand-alone Premiere channel. Two months later Kirch Group announced that Tellenbach will leave the company – no doubt a consequence of the disappointing results.

Although Premiere World hasn’t released any official figures so far this year, information leaked to Interspace reveal that during the pre-Christmas period only approximately 100,000 new subscribers were gained, many of them apparently have already decided to cancel their subscription after the trial period. Premiere World employees hinted to German weekly magazine Focus that the churn rate stands at an astounding 30 per cent.

Despite the extension of the promotion launched before Christmas until April 30 – in which the digital receiver d-box including a half-year subscription is sold for DM 444 (sports package) or DM 555 (full package) offering attracive value for money since the typical price of a set-top-box alone in Germany stands at DM 800 to 1,200 – it is believed that the subscriber figures remain stagnant at around 2.3 million.

It has been suggested by many industry experts that the only way to reach the breakthrough will be a free set-top-box model as successfully applied in several other European markets, in particular in the UK. However, Kirch Group still refuses to adopt this strategy, arguing that their existing offers branded ‘All-In-One’ are sufficiently attractive. Obviously, the majority of German TV homes have a different opinion.