Kabel Deutschland’s (KDG) acquisition of three cable networks in North Rhine Westphalia, Hesse and Baden-Wurttemberg in Germany could spell good news for the satellite pay-TV operator Premiere. KDG already offers some of Premiere’s services to its consumers as part of a unique marketing agreement, and the alliance could blossom. KDG and Premiere are not really competing against one another. Both are desperate to increase the numbers of digital subscribers that they both have.

Bertold Heil, head of the broadcast, online and entertainment segment of leading German research firm Detecon International, said KDG’s acquisition is not necessarily bad news for Premiere. Heil told Satellite News, “KDG and Premiere are both building their interests. KDG is really using the brand power that Premiere has built over the last year to make consumers aware of the digital bouquet that they are offering. I think both Georg Kofler (Premiere’s CEO) and Roland Steindorf (KDG’s CEO) are of the opinion that the Premiere/KDG alliance is really helping both parties flourish. There are no hidden arguments against that.”

What is beyond doubt is that the German digital TV market needs a great deal of investment. Premiere, having undergone some recent struggles, has bounced back in recent times. However, when comparing its nearly three million subscribers against BSkyB’s [BSY.L] 7 million-plus subscribers in the United Kingdom, it clearly has a long way to go. KDG is planning to create a countrywide network in Germany to roll out digital TV services.

KDG will invest $592 million in equipment and new services during the next three years, and this could provide a massive shot in the arm to digital TV in Germany. The three acquisitions will create a customer base of more than 17 million. Premiere’s content is already available on KDG’s network, and the increased scale can only be of benefit to Premiere. It will be interesting to see whether the KDG/Premiere alliance can boost both companies still further during the next year or so.

Content Providers

Roland Steindorf, KDG’s CEO, told Satellite News’ sister publication Inside Digital TV the German market is likely to become a great deal more attractive to content providers. He said, “We only have space for between 32 and 33 analog TV channels. A lot of TV broadcasters would like to enter the German cable TV network, and digital is the only way. This will result in more choice for our customers. Secondly, digital is a more modern way of watching TV. There will be a home cinema product, so we believe the digital signal will really improve the quality of the picture. Finally, when we go digital in the STB (set-top box) area, as part of the purchase market, personal video recorders (PVRs) will show up very quickly, and the PVR will give a significant advantage for our customers when they watch digital TV.”

The move to digital TV and another aggressive offer likely would have a number of benefits for Premiere. First, there will be two national pay-TV operators pushing pay-TV in Germany. There will be two brands and, between the two companies, the number of digital subscribers could be set to increase.

Making digital TV a mass-market phenomenon in Germany won’t be easy. Heil says, “Kabel Deutschland is not so cash rich that they will be able to do both — upgrading the network and really entering the digital market in a really bold way. That is definitely a problem. The bottom line is that if you consider Premiere gaining more power with the support of KDG, it will not be easier to market digital pay-TV. KDG will not be able or doesn’t see business sense in quickly building a digital customer base and then making money from selling content.”

STB Market Developments

However, while there are problems ahead, the changing dynamics of the landscape offer broadcasters and others looking to play a greater role in the German market greater reason for optimism. Both Premiere and KDG are committed to moving aggressively to digital. Steindorf believes there are opportunities there for others as well.

“Now, with a pan-German footprint, we are likely to get a quicker and friendlier response from the manufacturers of STBs and TVs, which may mean better value for money for the consumer in terms of STBs,” he says. “Our business concept is to establish an open platform in Germany. We would like to get as much digital free as well as digital pay on our platform. We are also convinced the market will develop in terms of STBs. We don’t want to be involved in the STB issue at all.”

For Premiere, the challenge will be to keep pushing its subscriber numbers north of three million. It will announce its first-quarter results sometime during the next week, and it could through the three-million-subscriber number barrier. It ended 2003 with a bit more than 2.9 million subs.

Heil expects the operator to have a good financial year in 2004, saying, “Premiere will have successfully finished their project for the new encryption. One of the things they will be doing is focusing very intensively on optimizing their customer relationship management. This will increase the quality of the way they communicate with their subscribers and they will increase the efficiency of their operations in the back office.”

–Mark Holmes

Contact: Bertold Heil, Detecon International, e-mail: [email protected].