1999/153/EC: Commission Decision of 27 May 1998 relating to a proceeding pursuant to Council Regulation (EEC) No 4064/89 (Case No IV/M.993 - Bertelsmann/Kirch/Premiere (notified under document number C(1998) 1439) (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-05-27
Institutions: European Commission
Subjects: Germany, dominant position, economic concentration, merger control, pay television, shareholding

27.2.1999

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II

(Acts  whose  publication  is  not  obligatory)

COMMISSION

COMMISSION  DECISION

of  27  May  1998

relating  to  a  proceeding  pursuant  to  Council  Regulation  (EEC)  No  4064/89

(Case  No  IV/M.993  —  Bertelsmann/Kirch/Premiere

(notified  under  document  number  C(1998)  1439)

(Only  the  German  text  is  authentic)

(Text  with  EEA  relevance)

(1999/153/EC)

THE  COMMISSION  OF  THE  EUROPEAN  COMMUNITIES,

Having regard to the opinion of the Advisory Committee
on  Concentrations (3),

Having  regard  to  the  Treaty  establishing  the  European
Community,

Whereas:

Having  regard  to  the  Agreement  on  the  European
Economic  Area,  and 
in  particular  Article  57(2)(a)
thereof,

Having  regard  to  Council  Regulation  (EEC)  No  4064/89
of  21  December  1989  on  the  control  of  concentrations
between undertakings (1), as amended by Regulation (EC)
No  1310/97 (2),  and  in  particular  Article  8(3)  thereof,

Having regard to the Commission Decision of 22 January
1998  to  initiate  proceedings  in  this  case,

Having  given  the  firms  concerned  the  opportunity  to
make  known  their  views  on  the  objections  raised  by  the
Commission,

SA 

and 

(CLT-UFA) 

(1)  On  1  December  1997  the  Commission  received
notification  pursuant  to  Article  4  of  Council
Regulation 
(the  Merger
(EEC)  No  4064/89 
Regulation)  of  a  proposed  concentration  whereby
Taurus
CLT-UFA 
Beteiligungs-GmbH  &  Co.  KG  (Taurus)  would
acquire joint control, within the meaning of Article
3(1) of the Merger Regulation, of Premiere Medien
GmbH  &  Co.  KG 
(Premiere),  BetaDigital
für  digitale  Fernsehdienste  mbH
Gesellschaft 
(BetaDigital)  and  BetaResearch  Gesellschaft  für
digitaler
Entwicklung 
Infrastrukturen  mbH 
The
proposed concentration was to be effected through
the  purchase  of  shares.

(BetaResearch). 

Vermarktung 

und 

(2)  On 15 December 1997 the Commission decided to
proposed
suspend 
concentration  pursuant  to  Articles  7(2)  and  18(2)

implementation 

the 

of 

(1)  OJ  L  395,  30.12.1989,  p.  1;  corrigendum:  OJ  L  257,

21.9.1990,  p.  13.

(2)  OJ  L  180,  9.7.1997,  p.  1.

(3)  OJ  C  57,  27.2.1999.

L  53/2

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of  the  Merger  Regulation,  pending  adoption  of  a
final  decision.

(3) 

By  letter  dated  22  December  1997  the  German
Government informed the Commission pursuant to
Article  9(2)  of  the  Merger  Regulation  that  the
concentration  threatened  to  create  or  strengthen  a
dominant  position,  as  a  result  of  which  effective
competition  would  be  significantly  impeded  on  six
markets  in  Germany,  each  constituting  a  separate
geographic  market  within  the  meaning  of  Article
9(7)  of  the  Merger  Regulation.

(4)  On  22  January  1998  the  Commission  decided
pursuant 
the  Merger
Regulation  and  Article  57  of  the  EEA  Agreement
to  initiate  proceedings  in  this  case.

to  Article  6(1)(c)  of 

(5) 

The Advisory Committee discussed the draft of the
present  Decision  on  6  May  and  25  May  1998.

I.  THE  PARTIES

(9) 

(6) 

Bertelsmann  AG  (Bertelsmann)  is  the  common
parent  company  of  the  leading  German  media
group.  The  Bertelsmann  group  has  activities
primarily  in  book  and  magazine  publishing,  book
clubs,  printing,  music  publishing  and  sound
recording,  and  has  holdings 
in  commercial
television.  CLT-UFA  is  a  joint  venture  between
Bertelsmann  and  Audiofina  SA,  in  which  the
parent  companies  have  merged  their  European
television  interests.  These  include  the  shareholding
in Premiere.

(7) 

Taurus  is  a  holding  company  belonging  to  the
Kirch  group  (Kirch).  Kirch  is  the  leading  German
supplier  of 
films  and  entertainment
programmes  for  television  and  is  also  active  in
commercial  television.  The  group  operates  mainly
in Germany.

feature 

II.  THE  PROPOSED  CONCENTRATION

which has 25 %. It is proposed that Canal+ should
divest  itself  of  its  shareholding  and  that  CLT-UFA
and  Kirch  should  increase  their  shares  in  Premiere
to  50 %  each.  At  the  same  time  Kirch  will  close
down  its  own  digital  pay-TV  channel  DF  1  and
transfer DF 1’s assets to Premiere. It will also bring
its  sports  channel  DSF  into  Premiere  and  place  its
pay-TV  and  pay-per-view  rights  at  Premiere’s
disposal  by  sublicensing  them  [. . .] (4).  Premiere
will  become  a  digital  pay-TV  programme  and
marketing  platform  using  the  d-box  technology
made available to it by Kirch, which operates with
a  proprietary  encryption  system.  To  this  end
Premiere  will  assemble  in-house  or  bought-in  TV
programmes into programme packages and market
them.  In  addition, 
it  will  provide  subscriber
management  services  (SMS)  both  to  Premiere
Digital and to other programme companies. It will
build up the decoder infrastructure (in the form of
set-top  boxes)  needed  to  receive  digital  television.
For digital television transmitted by satellite, it will
also  administer  a  system  of  conditional  access.

At  the  same  time,  CLT-UFA  will  acquire  a  50 %
interest  in  BetaDigital,  currently  a  wholly  owned
subsidiary  of  Kirch.  BetaDigital  operates  a  playout
centre for satellite-transmitted digital television and
will  in  future  provide  to  Premiere,  and  to  any
interested third parties, the services connected with
processing  and  broadcasting,  such  as  encryption,
video  compression,  multiplexing  and  satellite
uplink.  BetaDigital  currently  provides  satellite
uplink  for  DSF,  PRO  7  and  [. . .].

(10)  CLT-UFA  will  also  acquire  a  50 %  interest  in
BetaResearch,  currently  likewise  a  wholly  owned
Kirch  subsidiary.  BetaResearch  is  the  holder  of
exclusive,  open-ended 
licences  —  granted  for
Germany,  Austria  and  the  German-speaking  part
of  Switzerland  —  for  Beta  encryption  technology
for  scrambling  programmes,  based  on  the  d-box
decoder.  The  licenser  of  the  access  technology  is
DigCo  BV,  in  which  Kirch  and  Irdeto  BV,  owned
by  the  South  African  group  MIH,  each  have  a

(8) 

The German pay-TV supplier Premiere is currently
owned  by  CLT-UFA  and  Canal+  SA  (Canal+),
which  have  a  37,5 %  share  each,  and  by  Kirch,

(4)  Deleted  for  publication.  In  what  follows,  all  particulars  of
inter  alia,  market  shares  and  turnover  have,  for  reasons  of
confidentiality,  been  replaced  by  magnitudes  given  in  square
brackets.  Likewise,  text  of  a  confidential  nature  has  been
replaced  by  suspension  marks  in  square  brackets.

27.2.1999

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L  53/3

in 

is  active 

stake.  BetaResearch 

50 % 
the
development of decoder software and will continue
to  develop  the  encryption  and  operating  software
for  the  d-box  technology.  It  will  license  this
technology  to  Premiere,  Deutsche  Telekom  AG
(Telekom), other programme suppliers and decoder
manufacturers. In addition, BetaResearch will itself
manufacture  conditional  access  modules 
(CA
modules)  and  smart  cards  for  supply  to  d-box
manufacturers,  and  will  carry  out  contract  and
project  work  for  third  parties;  it  has  already
received  orders  for  such  work  from  [. . .].

(11) 

In  the  Agreement  on  a  cable  platform  for  digital
television  which  is  neutral  as  far  as  programme
suppliers  are  concerned,  Telekom  has  become
party  to  the  arrangement  between  Kirch  and
Bertelsmann  regarding  Beta  access 
technology
based  on  the  d-box  decoder,  thereby  obtaining  a
technical  platform  for  the  digital  distribution  of
pay-TV  programmes  via  its  cable  network.  It
intends to acquire a stake in BetaResearch in order
to  ensure  that  it  has  the  necessary  rights  in  the
d-box  decoder  based  Beta  access  technology.  This
operation  forms  the  subject-matter  of  proceeding
IV/M.1027  —  Deutsche  Telekom/BetaResearch.
Although,  technically  speaking,  the  two  projects
constitute 
concentrations  and  have
therefore also been notified separately, in fact they
are  closely 
linked.  Taken  together,  they  will
provide  the  framework  for  the  introduction  of
digital  television  in  Germany.

separate 

III.  THE  CONCENTRATION

(12)  Premiere 

is 

regard 

currently 

controlled 

rights  with 

jointly  by
CLT-UFA,  Kirch  and  Canal+,  since  all  three
to
partners  have  veto 
market-related  decisions.  The  operation  will  lead
to  a  change  in  the  nature  of  the  control.  Once
Canal+  has  withdrawn,  CLT-UFA  and  Kirch  will
each  have  a  50 %  interest  in  Premiere  and  will
jointly,  having  henceforth  to  take
control 
strategic  business  decisions  affecting  it  by  mutual
agreement. At the same time, Kirch will contribute
to Premiere substantial market-relevant assets both
in  the  form  of  DF  1  and  the  sports  channel  DSF
and  through  the  transfer  of 
its  pay-TV  and
pay-per-view  rights.  The  transfer  to  Premiere  of
Kirch’s  digital  interests  will  result  in  a  sizeable
extension  of  Premiere’s  business  activities.

it 

(13)  Premiere will perform on a permanent basis all the
functions  of  an  autonomous  economic  entity,  and

should  not  lead  to  coordination  of  the  competitive
behaviour of CLT-UFA and Kirch. It will continue
to  operate  pay-TV  in  Germany  and  will  develop,
alongside  the  previously  predominant  analogue
pay-TV  programmes,  digital  pay-TV  both  as  a
programme  supplier  and  at  the 
level  of  the
programme  and  marketing  platform.  Although  at
present  it  still  obtains  pay-TV  broadcasting  rights
from  Taurus,  once  the  agreements  concluded  by
Taurus  with  the  licensers  have  expired  Premiere
will  itself  acquire  those  rights  [. . .].  Once  the
proposed  merger  has  been  completed,  Kirch  and
CLT-UFA/Bertelsmann will be active on the market
for  pay-TV
for  pay-TV  and 
broadcasting rights only through their participation
in  Premiere.  The  increase  in  the  size  of  the  stakes
held  by  CLT-UFA  and  Kirch  in  Premiere  after  the
the
withdrawal  of  Canal+ 
into  a
simultaneous  development  of  Premiere 
digital  programme  and  marketing  platform,
therefore  constitutes  a  concentration  within  the
meaning  of  Article  3(1)(b)  of 
the  Merger
Regulation.

together  with 

the  market 

it 

(14)  CLT-UFA and Kirch will each have a 50 % interest
in  BetaDigital  and  will  control 
jointly.
BetaDigital  will  perform  on  a  permanent  basis  all
the  functions  of  an  autonomous  economic  entity,
and  should  not 
lead  to  coordination  of  the
competitive  behaviour  of  CLT-UFA  and  Kirch.
Although  at  the  present  time  the  purchasers  of
BetaDigital’s  technical  services  are  predominantly
firms  associated  with  CLT-UFA  and  Kirch,  the
provision  of  such  services  to  third  parties  is  not
only  planned  but  to  some  extent  already  a  reality.
It  may  be  assumed  from  this  that,  once  digital
in  Germany,
television 
kBetaDigital will act increasingly on behalf of third
parties. BetaDigital is accordingly to be regarded as
a  full-function  enterprise.  Since  in  the  field  of
technical 
television  only
CLT-UFA is active to any extent (through Cologne
Broadcasting  Centre  GmbH),  there  will  be  no
coordination  here  either  of 
the  competitive
behaviour  of  CLT-UFA  and  Kirch.  CLT-UFA’s
participation  in  BetaDigital  therefore  constitutes  a
concentration within the meaning of Article 3(1)(b)
of  the  Merger  Regulation 
in  the  form  of  a
concentrative  joint  venture.

is  more  widespread 

for  digital 

services 

(15)  To  begin  with,  CLT-UFA  and  BetaTechnik,  which
is  owned  by  the  Kirch  group,  will  each  have  a
50 %  interest  in  BetaResearch.  Once  Telekom  has
acquired  a  stake 
in  BetaResearch,  Telekom,
CLT-UFA  and  Kirch  will  control  BetaResearch

L  53/4

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27.2.1999

the 

jointly.  In  the  Agreement  on  the  restructuring  of
BetaResearch  (the  restructuring  agreement),  it  is
stipulated  that  important  business  decisions  [. . .]
are  to  be  taken  by  the  proprietors’meeting,  acting
unanimously.  BetaResearch  will  perform  on  a
permanent  basis  all 
functions  of  an
autonomous  economic  entity;  this  should  not  lead
to  coordination  of  the  competitive  behaviour  of
CLT-UFA  and  Kirch.  BetaResearch  will  not  only
license  d-box  technology  to  firms  —  such  as
Telekom  and  BetaDigital  —  which  seek  to  offer
technical  services  for  digital  television,  but  it  will
also  grant  licences  to  programme  suppliers  who
wish  to  provide  the  necessary  technical  services
themselves.  It  will  grant  licences  to  interested
decoder  manufacturers  and  supply  them  with  CA
modules,  and  develop  decoder  software  for  third
parties. Besides its business dealings with its parent
companies  and  with  companies  associated  with
them, 
that
BetaResearch  will  also  transact  licensing  business
to  a  not  inconsiderable  extent  with  third  parties
and  will  hence  have  its  own  access  to  the  market.
BetaResearch  is  accordingly  to  be  regarded  as  a
full-function  enterprise.  Since  only  CLT-UFA  is
active  in  the  field  of  digital  encryption  technology
for  pay-TV,  through  Bertelsmann’s  stake  in  Seca
SA,  there  is  no  risk  of  coordination  of  competitive
and  Kirch.
behaviour 
CLT-UFA’s 
BetaResearch
accordingly  constitutes  a  concentration  within  the
meaning  of  Article  3(1)(b)  of 
the  Merger
Regulation  in  the  form  of  a  concentrative  joint
venture.

between  CLT-UFA 
in 

therefore  be  assumed 

participation 

can 

it 

IV.  COMMUNITY  DIMENSION

(16)  Bertelsmann  and  Kirch  together  have  an  aggregate
worldwide  turnover  of  more  than  ECU  5  billion.
Each  of  them  has  an  aggregate  Community-wide
turnover  of  more  than  ECU  250  million.  Kirch  is
alone  in  realising  more  than  two  thirds  of  its
aggregate  Community-wide  turnover  within  one
and the same Member State, namely Germany. The
concentration 
a  Community
therefore  has 
dimension  and  does  not  constitute  a  case  of
cooperation  under  the  EEA  Agreement.

V.  ASSESSMENT  UNDER  ARTICLE  2  OF  THE
MERGER  REGULATION

—  pay-TV,

—  technical  services  for  pay-TV.

A.  RELEVANT  PRODUCT  MARKETS

1.  Pay-TV

the  case  of 

(18)  Pay-TV  constitutes  a  relevant  product  market
separate  from  that  for  free-access  television  (free
TV), i.e. advertising-financed private television and
public  television  financed  through  fees  and  partly
through  advertising (5).  While,  in  the  case  of  fee-
and advertising-financed television, there is a trade
relationship  only  between  the  programme  supplier
and the advertising industry, in the case of pay-TV
there  is  a  trade  relationship  only  between  the
programme  supplier  and  the  viewer  as  subscriber.
The  conditions  of  competition  are  accordingly
different  for  the  two  types  of  television.  Whereas
in 
fee-  and  advertising-financed
television  the  audience  share  and  the  advertising
rates are the key parameters, in the case of pay-TV
the  key  factors  are  the  shaping  of  programmes  to
meet the interests of the target groups and the level
of 
study  by
GfK-Fernsehforschung (GfK TV Research), pay-TV
subscribers  devote  on  average  90 %  of  their  daily
viewing time to free TV and 10 % to pay-TV. The
fact  that  subscribers,  despite  comparatively  little
use,  are  prepared  to  pay  considerable  sums  for
pay-TV 
is  a  clearly
distinguishable  product  with  specific  extra  utility.
As  digitalisation  continues  to  spread,  there  could
admittedly,  with  the  passage  of  time,  be  a  certain
free  TV,
convergence  between  pay-TV  and 
particularly 
if,  at  some  future  stage,  free-TV
channels  too  should  largely  be  supplied  in  digital
bouquets  by  pay-TV  operators.  However,  this
possible  future  development  is  not  enough  now  to
justify  the  acceptance  of  a  common  market  for
pay-TV  and  free  TV.  The  market  for  pay-TV  also
includes  pay-per-channel  and  pay-per-view.  The
into
pay-TV  market  cannot  be 

subscriptions.  According 

indicates  that  the 

subdivided 

to  a 

latter 

(17)  The  proposed  concentration  affects  mainly  the

markets  for:

(5)  See  Commission  Decision  94/922/EC,  MSG  Media  Service

(OJ  L  364,  31.12.1994,  p.  1,  paragraphs  32  and  33).

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analogue  and  digital  pay-TV.  Digital  pay-TV  is
only  a  further  development  of  analogue  pay-TV
and  therefore  does  not  constitute  a  separate
relevant  product  market.  Moreover,  account
should  be  taken  of  the  fact  that  in  the  next  few
years  analogue  broadcast  pay-TV  will  be
completely 
superseded  by  digital  broadcast
pay-TV.  Under  Premiere’s  business  plan,  analogue
subscriptions  will  be  continually  transformed  into
digital  ones,  so  that  by  [. . .]  the  only  subscribers
will  be  digital  ones.

distribution,  on  the  other  hand,  the  processed
television  signals  are  first  beamed  down  from  the
satellite  transponder  to  a  cable  head-end,  where
they are converted for cable transmission and then
fed  into  the  cable  network.  Despite  the  separate
transmission  technology  for  satellite  and  cable
transmission,  a  corresponding  subdivision  of  the
market  for  technical  services  for  pay-TV  into  two
independent 
seem
imperative.  Both  satellite  and  cable  transmission
require 
the
operation  of  pay-TV.  Ultimately  the  question  can
be  left  open,  however,  as  it  does  not  affect  the
outcome  of  the  assessment  under  the  Merger
Regulation.

technical  services 

sub-markets 

the  same 

does 

not 

for 

2.  Technical  services  for  pay-TV

B.  RELEVANT  GEOGRAPHIC  MARKETS

(19)  The  operation  of  pay-TV  requires  a  special
technical  infrastructure  in  order  to  encrypt  the
television  signals  and  to  decrypt  them  for  the
authorised viewer. This is done by a decoder which
is installed in the home of every pay-TV subscriber.
Decoders  for  receiving  digital  pay-TV  do  not  only
decrypt  the  signals  encrypted  in  the  access  system,
but  they  also  convert  them  to  enable  digital
television  signals  to  be  received  on  analogue  TV
sets.  Different  decoders  are  used  for  cable  and
satellite  TV.

(22)  The  relevant  geographic  market  for  the  product
markets  described  above  is  confined  to  Germany,
or  at  all  events  to  the  German-speaking  region
the
consisting  of  Germany,  Austria 
German-speaking 
and
Switzerland.  Given  the  viewing  habits  of  the
population,  Luxembourg  too  can  be  included  in
the  German-speaking  region.

Belgium 

parts 

and 

of 

1.  Pay-TV

(20) 

conditional  access.  This 

In  addition  to  a  decoder  base,  pay-TV  requires  a
system  of 
system
comprises  the  transmission  of  encrypted  data,
which  contain  information  on  the  programmes  or
packages  of  programmes  subscribed  to  and  on  the
entitlement  of  the  pay-TV  subscribers  to  receive
the  programmes,  together  with  the  television
signal,  and  possibly  smart  cards  which  are  made
available to the viewer and are able to decipher the
encrypted  authorisation  data  and  transfer  them  to
the  decoder.

(23)  Despite  the  fact  that,  in  certain  niche  markets,
channels  such  as  the  sports  channel  Eurosport  are
throughout 
broadcast 
television
Europe, 
broadcasting 
is  still  generally  organised  on  a
national  basis.  As  the  Commission  has  already
stated in a number of decisions (6), owing primarily
to  different  regulatory  regimes,  language  barriers,
cultural  factors  and  other  different  conditions  of
competition  prevailing  in  the  individual  Member
States  (e.g.  the  structure  of  the  market  for  cable
TV),  the  markets  for  the  organisation  of  television
are  national  in  nature.

(21)  The  infrastructure  described  above  forms  the  basis
for  the  services  relating  to  the  operation  of
pay-TV.  These  involve  primarily  the  handling  of
conditional  access  and  the  marketing  of  decoders
and  smart  cards.  Technical  services  for  pay-TV
require  specific  technology  for  the  transmission  of
digital  television  signals  via  satellite  and  via  cable.
In  the  case  of  satellite  transmission,  the  television
signal  is  processed  by  the  playout  centre  and  sent
to  the  respective  satellite  transponder,  from  where
it  can  be  beamed  down  and  received  directly  by
each  satellite  TV  subscriber  using  a  decoder
designed for satellite reception. In the case of cable

(24)  Germany  is  accordingly  the  relevant  geographic
market  for  pay-TV.  The  Commission  came  to  the
same  conclusion  in  the  MSG  Media  Service  case,
although it indicated in that Decision that, bearing
in mind the lack of any language barrier, a market
might  in  future  be  assumed  to  exist  for  German
language 
Commission’s
investigation  in  the  present  proceeding  brought  to
light a number of grounds for considering that the

pay-TV (7). 

The 

(6)  See  MSG  Media  Service 

footnote  5,  paragraph  46;
Commission  Decision  96/346/EC,  RTL/Veronica/Endemol,
(OJ  L  134,  5.6.1996,  p.  32,  paragraph  25).

(7)  See  footnote  5,  paragraph  51.

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27.2.1999

relevant  geographic  market 
for  pay-TV  here
extends  beyond  Germany  and,  in  view  of  the  lack
of  any  language  barrier,  comprises  the  entire
German-speaking 
can,
however,  be  left  open  in  the  last  analysis,  as  the
competition assessment of the concentration would
be  the  same  even  on  the  assumption  of  a  market
encompassing  the  whole  of  that  region.

area.  This  question 

2.  Technical  services  for  pay-TV

acquired 

(25)  Technical services for pay-TV are closely bound up
with the supply of pay-TV.  In its  decision  in MSG
Media Service (8) the Commission assumed that the
relevant  geographic  market  was  confined 
to
Germany,  but  at  the  same  time  it  stated  that,  to
the extent that German providers of digital pay-TV
other
also 
German-speaking  regions,  MSG’s  service  market
would  probably  also  spread  to  such  areas.  In  the
present  case,  the  market  for  technical  services  for
pay-TV  may,  whether  there  is  assumed  to  be  a
separate  market  for  satellite  transmission  or  an
overall  market  for  satellite  and  cable  transmission,
be 
entire
deemed 
German-speaking area.

subscribers 

encompass 

the 

to 

in 

(b) Technical  platform

the 

(27)  The  technical  platform  in  the  narrower  sense,  i.e.
the  controlling  of  conditional  access  and  the
provision  of 
technical  services  connected
therewith,  will  be  organised  differently  in  the  case
of  satellite  transmission  and  in  that  of  cable
transmission.  The  technical  platform  encrypts  the
signals  of  the  programme  to  be  broadcast  that  are
sent  by  the  programme  supplier  and  transmits
them  to  subscribers.  In  the  case  of  satellite
transmission,  access  control  and 
the  related
technical  services  will  be  handled  by  BetaDigital,
while  in  the  case  of  cable  distribution  access
control  will  be  handled  by  Telekom,  which  will
provide  an  electronic  programming  guide  in  the
form  of  a  base  navigator.

(28)  The  decoder  technology  is  part  of  the  technical
platform.  CLT-UFA,  Kirch  and  Telekom  have
agreed  to  use  d-box  technology  and  Beta  access
control  technology  —  the  latter  co-developed  by
Kirch  —  for  encryption  purposes  in  connection
with 
satellite
broadcasting  of  programmes.  In  order  to  ensure
the  use  of  Beta  access  technology  by  Premiere  and
Telekom 
structural  point  of  view,
CLT-UFA  and  Telekom  will  acquire  a  stake  in
BetaResearch,  which  owns  the  rights  to  the
encryption  and  decoder  systems.

distribution 

from  a 

cable 

and 

the 

C.  EFFECTS  OF  THE  CONCENTRATION

2.  Market  for  pay-TV

1.  Organisation  of  pay-TV  in  Germany  after  the

concentration

(a)  Market  domination

(a)  Programme  platform

(29)  The  proposed  concentration  will 

lead  to  the
creation  or  strengthening  of  a  dominant  position
for  Premiere  on  the  pay-TV  market  in  Germany.

commissioned  TV  programmes 

(26)  Premiere will build up a programme and marketing
platform  and  distribute 
its  programmes  both
through  the  cable  networks  (using  Telekom’s
technical  platform)  and  via  satellite  (using  its  own
in-house
technical  platform).  It  will  assemble 
and/or 
into
programme  packages,  which  it  will  market  either
by  way  of  direct  marketing  or  through  the  trade
and it will provide subscriber management services
not  only  for  Premiere  Digital  but  also  for  other
programme  suppliers.  As  a  matter  of  priority,  it
will  build  up  the  decoder  infrastructure  (set-top
boxes)  needed  to  receive  digital  TV.

(8)  See  footnote  5,  paragraphs  52,  53  and  54.

(i)  Premiere  will  have  a  near-monopoly  as

pay-TV  supplier

‘Multithe´matiques’ 

(30)  At  the  present  time,  Premiere  and  DF  1  are
basically  the  only  pay-TV  suppliers  in  Germany.
Although  Canal+  is  active  in  Germany,  providing
the 
bouquet
consisiting  of 
special-interest
three  pay-TV 
channels,  the  bouquet  is  currently  broadcast  using
DF  1’s  platform.  Premiere  has  approximately  1,5
million  subscribers  (November  1997  position),
including 
Premiere  Digital
100 000 
subscribers  (December  1997  position).  DF  1  has

programme 

some 

27.2.1999

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L  53/7

figures 

indicate 

approximately [(cid:44)100 000] subscribers to its digital
programme  package  (November  1997  position).
These 
that  Premiere  already
occupies  a  dominant  position  on  the  pay-TV
market.  This  position  is  not  as  yet  unassailable
though,  since  Kirch  has  extensive  and  important
films  and  sports  rights  and  Premiere  is  especially
dependent  on  the  former’s  pay-TV  broadcasting
rights. Even if Kirch, as explained in recital 2, was
able  to  exercise  joint  control  over  Premiere,  there
has  hitherto  been  an 
intensive  competitive
relationship  between  Premiere  and  DF  1.  Despite
its position as a partner in Premiere, in 1996 Kirch
began,  with  DF  1,  to  set  up  a  digital  pay-TV
platform 
in  competition  with  Premiere.  This
behaviour  triggered  intense  competition  between
Premiere and DF 1 and resulted in numerous court
proceedings.  One  of  the  consequences  of  this
competition  was  that,  prior  to  the  agreement
reached  in  June  1997  on  the  proposed  merger,
Kirch  and  Premiere  were  each  running  separate
decoder projects. Once the proposed concentration
has taken place, this competition will cease and for
all  practical  purposes  there  will  be  only  one
pay-TV-supplier,  which  will 
the
programme  resources  of  both  CLT-UFA  and
Kirch.

combine 

(ii) Premiere  will  be  the  only  programme  platform

for  digital  pay-TV

supply 

(31)  At  present  Premiere  provides  an  analogue  pay-TV
channel  which  broadcasts  mainly  premium  films
(first  transmission  of  currently  showing  feature
films and sports events. Premiere Digital provides a
further two channels which broadcast the analogue
programme  with  staggered  showing  times.  The
digital 
films  on  a
pay-per-view  basis.  DF  1  offers  a  basic  bouquet
consisting  of  20  channels  (including  a  few  foreign
free-TV 
Planet
and 
pay-channel). 
three  additional
packages  (films,  sport  and  science  fiction),  four
special-interest  channels,  which  can  be  subscribed
to  separately  (including  two  belonging  to  Canal+),
and  feature  films  on  a  pay-per-view  basis.

It  also  offers 

Canal+’s 

channels 

includes 

feature 

(32)  The  conversion  of  Premiere  into  a  50/50  joint
venture  between  CLT-UFA  and  Kirch  and  the
cessation of the activity of DF 1 as an independent
pay-TV  supplier  mean  that  in  the  near  future
Premiere  will  be  the  only  pay-TV  programme  and
marketing  platform 
the
concentration  has  taken  place,  Premiere  will  have

in  Germany.  Once 

taken  over  substantial  assets 
[. . .].  DF  1’s
broadcasting  and  other  activities  will  thereupon
cease. Taurus Film will, moreover, transfer [. . .] to
Premiere in return for the assumption by the latter
of  its  responsibilities  as  employer.  Premiere  will
acquire  the  sports  broadcaster  DSF,  which  will  in
future  supply  sports  channels 
for  Premiere’s
programme bouquet and operate an additional free
TV  sports  channel.  It  is  also  taking  over  the
operation  of  [(cid:44)20]  of  DF  1’s  transponders  and
[(cid:44)10]  of  CLT-UFA’s,  together  with  responsibility
for  the  contract  between  Kirch  and  Nokia  for  an
order  of  over  1  million  d-box  decoders.

(33) 

[. . .].

(iii) Premiere  will  have  access  to  the  most

attractive  and  most  comprehensive  programme
resources

(34)  Access  to  programme  resources  is  vital  to  the
successful  provision  of  pay-TV.  Particularly
important  is  access  to  premium  films  and  major
sporting  events;  bradcasting  these  on  the  premium
channels  known  as  ‘anchor  channels’  awakens
interest  in  a  pay-TV  bouquet  among  potential
subscribers.  Access  to  a  stock  of  films  that  have
already  been  shown  on  television  and  to  television
productions suitable for repeat broadcasting is also
important.  ‘Library’  programmes  of  this  kind  can
be  used  especially  in  order  to  run  special-interest
channels,  such  as  feature  film  channels  or  science
fiction,  comedy  and  documentary  channels.

(35)  Premiere  will  have  access  to  programme  resources
unparalleled 
its  parent
in  Germany 
companies  CLT-UFA  and  Kirch  on  account  of
their  positions  on  the  upstream  markets  for
programme  rights.  For  reasons  of  confidentiality
no  detailed  figures  can  be  given  here.

through 

(36)  Kirch  is  the  leading  German  supplier  of  feature
films and entertainment programmes for television.
In  its  Decision  in  MSG  Media  Service (9),  the
Commission  noted  that  Kirch  had  at  its  disposal  a
stock  of  about  15 000  films  of  all  types  and
50 000  hours  of  television  programmes,  and  also
had  extensive  production  activities  in  the  area  of
films  and  television.  Since  that  Decision,  in  the
years  [. . .],  Kirch  has  concluded  exclusive  output
deals  for  pay-TV  rights  with  numerous  film
the  Hollywood
studios, 

including  almost  all 

(9)  See  footnote  5,  paragraph  76.

L  53/8

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27.2.1999

majors,  and  has  thereby  acquired  a  commanding
position in the area of programming. Furthermore,
the  proportion  of  pay-TV  rights  which  is  not  now
in  the  hands  either  of  Kirch  or  of  CLT-UFA  or
Premiere  is  [. . .].  As  a  result  of  the  output  deals
concluded by Kirch for pay-TV rights in particular,
the  [. . .]  monopoly  in  premium  films  for  pay-TV
which  Premiere  will  enjoy  as  a  result  of  the
transaction  will  continue 
foreseeable
future.

the 

for 

(37)  Kirch  and  CLT-UFA  also  hold  [. . .]  sports  rights,
which  in  many  cases  are  complementary.  For
example,  CLT-UFA  has  the  pay-TV  rights  to
German  Bundesliga  football  matches,  while  Kirch
has  [. . .].  In  tennis,  Kirch  has  the  rights  to  [. . .],
while  CLT-UFA  has  the  rights  to  [. . .].  Both  have
rights to a large number of other sports. Kirch, for
example,  has  the  rights  to  [. . .].

(43) 

(38) 

[. . .].

(39) 

[. . .].

(40) 

[. . .].

(41) 

[. . .].

a  list  of  particularly  important  sporting  events  to
be transmitted by free TV, it should be emphasised
that  these  involve  only  the  Olympic  games  and  a
few  football  matches  of  outstanding  importance.

(iv) Premiere’s  scope  for  competitive  action  will
not  be  controlled  to  any  considerable  extent
by  public  television  suppliers

that 

its  examination 

In  their  reply  to  the  Commission’s  objections,  the
parties  contend 
the
in 
Commission  did  not  pay  enough  attention  (a)  to
the strong competitive interrelation between public
and  commercial  free  TV  on  the  one  hand  and
pay-TV  on  the  other  hand  and  (b)  to  the  resulting
controlling  influences  of  free  TV  on  pay-TV.  In
particular,  the  Commission  took  absolutely  no
the  massive  competitive  pressure
account  of 
exerted  by  public  television 
in  Germany  on
pay-TV.

(42) 

[. . .].  When  the  parties  contend  that  some  of  the
said rights are granted to them for only a relatively
short  time  with  the  result  that  they  would  soon
have to try and get them renewed, this is of course
quite  true.  In  this  respect,  the  list  given  here
reflects only the current situation. When, however,
the  parties  already  hold  a  quite  considerable
number of these important sports rights, which are
usually  granted  only  for  a  relatively  short  period,
then it is to be expected, after their resources have
been  bundled  in  Premiere,  that  they  will  also  be
awarded such rights in future, at least on the same
scale  but  probably  to  a  greater  extent.  The  parties
have  not  contended  otherwise.  As  regards  the
parties’contention  that  the  Prime  Ministers  of  the
Länder  had,  on  the  basis  of  European  Parliament
and  Council  Directive  97/36/EC  of  30  June  1997
amending  Directive 
the
coordination  of  certain  provisions  laid  down  by
law, regulation or administrative action in Member
television
States 
broadcasting  activities (10),  provisionally  agreed  on

the  pursuit  of 

89/552/EEC 

concerning 

on 

(10) OJ  L  202,  30.7.1997,  p.  60.

It 

to  pay-TV. 

in  addition 

(44)  The  Commission  does  not  deny  that,  although
pay-TV  and  free  TV  constitute  two  different
markets, there is an interrelation between them. As
explained more fully in section (c), the more varied
and  attractive  the  programmes  supplied  by  free
TV,  the  less  incentive  there  is  for  viewers  to
subscribe 
is  not
convincing to say, however, that on account of this
interrelation  Premiere’s  scope  for  action  on  the
pay-TV  market  is  already  considerably  restricted,
especially  by  the  public  broadcasters.  There  is  no
direct  competitive  relation  between  free  TV  and
pay-TV.  When  the  parties  object,  on  the  contrary,
that  such  competition  does  exist,  particularly  in
regard  to  audience  share,  this  is  immediately
contradicted  by  their  further  statements.  The
parties cite a study by GfK-Fernsehforschung (GfK
TV  Research),  according 
to  which  pay-TV
subscribers  devote  on  average  90 %  of  their  daily
viewing  time  to  free  TV  and  10 %  to  pay-TV.  If,
however,  pay-TV  subscribers  are  prepared, 
in
addition  to  the  existing  broadcasting  fees  of  about
DEM 30,  to  pay  an  extra  DEM 50  for  a  pay-TV
subscription,  although  they  use  this  for  only  10 %
of  their  viewing  consumption,  this  shows  that  the
economic  success  of  pay-TV 
is  not  exactly
dependent  on  the  audience  share.  What  is  decisive
is  the  subscriber  base,  which  exists  independently

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fact 

time.  The 

of the actual extent to which pay-TV is used at any
one 
that  subscribers,  despite
comparatively  little  use,  are  prepared  to  pay  a
considerable  price  for  pay-TV  shows,  moreover,
that  pay-TV  is  a  clearly  distinguishable  product
with  specific  extra  utility.

(i)  No  other  firm  will  have  the  programme

resources  necessary  to  establish  a  programme
platform

(45)  When  the  parties  further  contend  that  an  increase
in broadcasting fees affects the demand for pay-TV
and  that,  hence,  the  elasticity  of  demand  for
pay-TV depends in the long term on the amount of
the fees charged by public broadcasters, this is not
evidence,  either,  of  a  competitive  relation  between
pay-TV  and  the  public  broadcasters.  To  begin
with,  a  fee  increase  and  hence  a  charge  on  the
‘cultural budget’ would have to be fairly drastic to
affect  the  existing  willingness  to  pay  DEM 50  a
month  for  a  pay-TV  subscription.  Furthermore,  it
is  fair  to  speak  of  a  competitive  relation  with
regard  to  the  amount  of  the  fees,  and  possibly  the
price  of  a  pay-TV  subscription,  only  if  the  public
broadcasters  could  set  the  fees  autonomously.  But
this  is  precisely  what  they  cannot  do.

(b) Duration  of  dominance

(46)  The parties concede that Premiere will have a very
strong  position  on  the  market  in  pay-TV  over  the
next  five  years.  But  they  argue  that  this  position
will  be  limited  in  time.  As  soon  as  Premiere  has
succeeded  in  establishing  a  broad  decoder  base,
other  pay-TV  suppliers  will  be  able  to  use  it  to
offer their own pay-TV marketing and programme
platforms  and  to  provide  and  distribute  their  own
programmes 
competition  with  Premiere.
Telekom  in  particular  will  be  able  to  set  up  an
alternative programme and marketing platform for
cable,  and  to  market  programmes  and  to  service
and  manage  subscribers  for  other  programme
suppliers.

in 

(47)  This  argument  cannot  be  accepted.  It  must  be
assumed  that  Premiere’s  dominant  position  will  be
established  on  a  lasting  basis.  As  a  result  of  the
transaction,  Premiere  will  continue  to  be  the  only
programme  and  marketing  platform  for  the  cable
and  satellite  sector  on  the  pay-TV  market  in
Germany  for  a  long  time  to  come.

(48)  Access 

rights 

to  programme 

is  even  more
important  in  the  case  of  pay-TV  than  it  is  in  the
case  of  free  TV,  since,  in  order  to  entice  the
consumer  to  subscribe,  or  to  take  particular
productions  on  a  pay-per-view  basis,  certain
specific  types  of  content  are  required.  Experience
with  pay-TV  in  Europe  so  far  shows  that  in  order
to be sufficiently attractive a pay-TV bouquet must
include  a  combination  of  premium  rights  for  the
first  broadcasts  of  films  produced  at  the  major
Hollywood  studios  and  for  popular  sporting
events.  This  is  especially  true  in  Germany,  where
every household with television can already receive
more than 30 free-access channels. The importance
of  premium  films  and  sporting  events  for  the
organisation  of  pay-TV 
is  borne  out  by  the
programme  costs  estimated  in  Premiere’s  business
plan. [60 % to 80 %] of all licensing costs in 1998
are  accounted  for  by  premium  films  ([30 %  to
50 %])  and  sports  rights  ([20 %  to  40 %]).  An
alternative  programme  platform  can  therefore  be
built  up  only  by  somebody  who  has  access  to
premium  content  so  that  he  can  offer  a  promising
pay-TV  bouquet.

(49)  But  programme  resources  are  in  short  supply,
since, as a general rule, the broadcasting rights for
premium  content  of  this  kind  are  given  on  the
basis  of  longer-term  exclusive  contracts.  In  the
German-speaking  area  CLT-UFA  and  Kirch  hold
[. . .]  pay-TV  broadcasting  rights  for  premium
films,  as  a  result  of  output  deals  with  the
Hollywood  majors,  and  [. . .]  sports  rights  too.  As
CLT-UFA  and  Kirch  are  to  transfer  their  pay-TV
broadcasting  rights  to  Premiere,  the  transaction
will  initially  make  Premiere  the  only  operator  to
dispose  of  the  programme  content  for  a  premium
channel.  For  the  duration  of  the  existing  contracts
no  other  supplier  will  have  access  to  Premiere’s
programme  resources.  Thus  potential  competitors
will  not  be  in  a  position  to  create  an  alternative
programme  platform  for  the  German-speaking
area.  They  might  be  able  to  show  particular
programmes  in  specific  pay-TV  niches,  but  to  do
so 
they  would  be  dependent  on  Premiere’s
programme  and  marketing  platform.

L  53/10

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27.2.1999

(50)  Nor is it likely that the situation will change in any
way  once  the  current  contracts  for  pay-TV  rights
have  expired.  In  theory,  pay-TV  services  could  be
supplied  in  Germany  and  the  German-speaking
area  by  other  European  and  non-European
television  operators,  such  as  BskyB  Ltd  or  Canal+,
or even the major Hollywood studios. But in order
to establish an alternative programme platform it is
not  enough  to  conclude  just  a  few  individual
output deals. The output deals concluded by Kirch
and  CLT-UFA  run  for  different  terms.  Four  of  the
ten  output  deals  of  Kirch,  whose  rights  will  be
sub-licensed  to  Premiere,  have  a  term  of  [(cid:44)20]
years.  These  are  at  least  [. . .].  Most  of  the  output
deals  with  the  Hollywood  majors  run  till  [(cid:44)2005]
or  longer.  Potential  competitors  would  have  to
succeed  in  acquiring  rights  under  several  output
deals  over  a  number  of  years  before  they  could
offer  an  attractive  pay-TV  bouquet.

(51)  Given  the  market  position  Premiere  will  have
established  by  then,  competitors’  prospects  of
securing  any  substantial  volume  of  attractive
pay-TV  broadcasting  rights  will  be  small.  To  have
any  hope  of  acquiring  broadcasting  rights,  it  is
vital  to  have  access  to  an  established  subscriber
base,  since  rightholders  usually  want  to  see  their
product distributed widely. This is true of premium
films,  and  even  more  so  of  sports  events.  The
holders  of  sports  rights  are  especially  interested  in
having their events broadcast as widely as possible,
as  this  attracts  further  sponsors  and  increases
advertising  revenue.  Premiere  will  already  have  an
established  subscriber  base,  which  will  enable  it  to
guarantee  more  extensive  distribution  than  a
bidder  who  has  still  to  build  up  a  subscriber  base.
In addition, the prices of pay-TV rights are usually
the  number  of
determined  by  reference 
subscribers,  subject  to  a  stated  minimum.  This  is
certainly  what 
in  output  deals.  As
Premiere’s  subscriber  base  can  be  expected  to  be
large in the next few years, it follows that a sale of
rights  to  Premiere  should  secure  a  considerably
higher price than sale to a newcomer. Moreover, a
newcomer  would  run  a  considerable  financial  risk
by concluding output deals, since it would have to
guarantee  a  minimum  subscriber  base,  without

is  done 

to 

knowing  whether  it  could  achieve  the  guaranteed
figure.  In  view  of  the  advantages  which  Premiere
will  consequently  enjoy  over  any  potential
competitor  in  the  negotiation  of  contracts  for
premium  content,  it  is  unlikely  that  outsiders  will
be able to secure adequate access to content of that
kind.

(52) 

It  is  also  unlikely  that  Telekom  will  establish  an
alternative  programme  and  marketing  platform.
Telekom would in any event be able to establish a
platform  only  for  cable.  But  Telekom  does  not
hold  film  and  sports  rights.  To  build  up  a
competing bouquet it would have to have premium
content  and  only  an  operator  with  access  to
premium  content  can  successfully  market  other
programmes  that  are  suitable  for  bundling.  These
are  programmes  which  are  not  so  attractive  in
themselves  that  they  might  induce  viewers  to
subscribe.  Thus  Telekom  would  be  able  to  build
up  an  alternative  platform  open  to  potential
competitors  with  Premiere  only  if  it  had  access  to
premium  content  or  to  a  premium  channel.  In  its
agreements  with  CLT-UFA  and  Kirch,  however,
Telekom  has  expressly  undertaken  not  to  market
Premiere  itself.  it  is  difficult  to  see,  therefore,  how
Telekom  could  build  up  an  attractive,  marketable
pay-TV  bouquet.

(ii) The  transaction  enables  Premiere  to  combine
the  advantages  of  its  subscriber  base  with  the
enormous  programme  resources  of  Kirch

(53)  Premiere  is  already  the  biggest  pay-TV  supplier,
and as such already has a subscriber list that it can
use  for  the  future  digital  pay-TV.  As  can  be  seen
from  Premiere’s  marketing  of  the  d-box,  which
was  suspended  last  December,  an  existing  body  of
analogue  TV  subscribers  is  an  important  factor  in
the  successful  marketing  of  a  digital  pay-TV
bouquet. Premiere offered its subscribers the digital
programme, including the hire of the d-box, at the
small  extra  charge  of  DEM 10  over  that  analogue
subscription.  Between  the  beginning  of  November
and  the  middle  of  December,  when  the  marketing
of  the  d-box  came  to  an  end,  Premiere  secured
[50 000 
to  Premiere
Digital,  and  placed  a  corresponding  number  of

to  100 000]  subscribers 

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d-boxes  on  the  market.  There  were  [(cid:44)20 000]
d-boxes  exchanged  for  [. . .],  [50 000  to  70 000]
d-boxes  exchanged  for  analogue  decoders  being
used  by  Premiere  subscribers,  and  only  [10 000  to
30 000]  new  subscribers  for  Premiere  Digital.
Anyone  wishing  to  compete  with  Premiere  on  the
market  in  pay-TV  would  have  to  acquire  a  similar
subscriber  base  first,  or 
in  other  words,  as
compared  with  Premiere,  to  start  from  scratch.

new decoder infrastructure. In practice, however, a
new  programme  supplier  entering  the  market  will
have  to  use  the  services  and  infrastructure  of  the
pay-TV  operator  already  established  on 
the
market.  This  follows  in  particular  from  the  fact
that  the  economic  risk  is  too  great  to  justify
installing  a  new 
for  a  new
programme.  Households  will  not  normally  be
prepared  to  procure  another  decoder  in  order  to
receive  another  pay-TV  bouquet.  This  is  true
whether  the  new  decoder  is  for  sale  or  for  hire.

infrastructure 

(54) 

In  addition,  it  should  be  borne  in  mind  that  the
CLT-UFA  programme  resources  at  Premiere’s
disposal  would  allow 
it  to  develop  different
programme  packages  tailored  to  the  needs  of
particular  target  groups  which  could  be  offered  to
those  groups  at  advantageous  subscriber  prices.
Experience  in  countries  in  which  the  pay-TV
business  has  already  developed  further  shows  that
the  assembly  of 
into
packages  is  an  important  component  in  success  in
the  pay-TV  business.  Premiere  will  be  the  only
operator  with  premium  content  available,  and  will
be  able  to 
its
premium  content  still  further  by  bundling  it  with
other  programme  rights.

increase  the  attractiveness  of 

individual  programmes 

(57) 

(55)  CLT-UFA  and  Kirch  also  conduct  extensive
free-access  commercial  TV  operations.  Together
with  Bertelsmann  they  have  over  50 %  of  the  free
TV  audience  and  90 %  of  the  advertising  market,
through  programme  suppliers  linked  to  CLT-UFA,
namely  RTL,  RTL  2,  Super  RTL  and  VOX,  and
those in Kirch’s sphere of influence, namely SAT 1,
DSF, PRO 7 and Kabel 1. CLT-UFA and Kirch can
use  their  strong  presence  in  free  TV  to  promote
Premiere  Digital  intensively.  This  was  the  strategy
followed  for  the  marketing  of  Premiere  Digital
between  the  beginning  of  November  and  the
middle  of  December  last  year.  Of  course,  as  a
general  rule,  potential  competitors  would  also  be
able  to  advertise  on  free  TV  in  this  way.  But  it  is
questionable  whether  they  would  be  able  to
advertise on terms comparable with those available
to  Premiere.

(iii) Bertelsmann  and  Kirch  control  the  decoder

infrastructure

(56)  Potential  competitors  from  Germany  and  abroad
who  propose  to  offer  their  own  programmes  and
channels  on  the  German  market  are  dependent  on
access  to  the  d-box.  In  theory,  a  pay-TV  operator
has  a  choice  between  distributing  programmes  via
an  existing  decoder  infrastructure  or  building  up  a

some  7 000 000 

In  addition,  an  alternative  decoder  infrastructure
could  in  any  event  be  established  only  for  satellite
to
transmission.  There  are 
9 000 000 households receiving satellite broadcasts
in  Germany,  while  about  18 500 000  households
are connected to broadband cable networks. In the
restructuring  agreement,  however,  CLT-UFA,
that  when
Kirch  and  Telekom  have  agreed 
Telekom provides technical services for the relay of
digital  TV  programmes  via  its  broadband  cable
networks,  it  will  use  only  Beta  access  technology
on  the  basis  of  the  d-box  decoder.  Any  pay-TV
operator  seeking  access  to  the  18 500 000  cable
households  would  therefore  have  to  use  the  d-box
in  any  event.  It  can  be  concluded,
decoder 
therefore,  that  future  competitors  Premiere 
in
pay-TV  will  be  dependent  on  access  to  the  d-box
decoder  base 
their
bouquet.

the  broadcasting  of 

for 

(58)  The  d-box  works  with  a  proprietary  conditional
access  system,  so  that  a  potential  pay-TV  operator
will  have  to  acquire  a  licence  from  BetaResearch
for  the  use  of  the  Beta  access  technology.  But
BetaResearch is two-thirds controlled by CLT-UFA
and  Kirch.  Through  their  stake  in  BetaResearch,
therefore,  CLT-UFA  and  Kirch,  would  be  in  a
position  to  exercise  a  powerful  influence  over  any
competition  offered  by  future  pay-TV  operators  to
Premiere,  and  to  a  great  extent  to  channel  it  as
they  saw  fit.  With  their  controlling  interest  in
BetaResearch,  they  could  ensure  that  the  terms  for
the use of Beta access technology, and in particular
the  price  structure  applied,  were  advantageous  to
potential
Premiere 
unfavourable 
inflated
competitors’  programmes.  Artificially 

and 

to 

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27.2.1999

prices,  for  example,  would  favour  CLT-UFA  and
Kirch,  since  unlike  their  competitors  they  share  in
BetaResearch’s  profits.  Moreover,  as  explained
below  (see  recital  112),  in  view  of  the  control  of
access  technology  it  should  be  assumed  that  in  the
satellite  field  there  will  be  hardly  any  other
suppliers  of  technical  services  on  the  market  apart
from BetaDigital. Potential competitors of Premiere
will 
their
to 
programmes  be  controlled  by  BetaDigital.

therefore  have 

let  access 

to 

The 

range 

guide’ 

programmes. 

(59)  Control  of  the  decoder  infrastructure  also  enables
the  parties  to  influence  the  positioning  of  their
competitors’ 
of
programmes  possible  in  digital  television  makes  it
necessary  to  provide  users  with  an  ‘electronic
allows
programming 
programming  and  other 
to  be
presented to the viewer in an easy-to-read form. A
navigation  system  known  as  TONI  is  contained  in
the d-box which provides the basic functions of an
EPG.  This  is  a  proprietary  solution  developed  for
the  d-box.  All  programme  suppliers  are  dependent
on the performance of this EPG. At present outside
programme  suppliers  are  unable  to  operate  their
own  EPG  on  the  d-box.  They  have  to  be  included
in  the  d-box  EPG.

(EPG),  which 
information 

simpler 

this  kind 

Information  of 

third  parties.  This  objection 

obtained  showing  which  specific  group  preferred
which  kind  of  programme  content  and  to  what
extent. 
confers
considerable  competitive  advantages  by  making  it
to  develop  programmes  or
much 
programme  packages  tailored  to  particular  target
groups.  The  parties  object,  on  the  contrary,  that  it
is  possible  for  other  suppliers  simply  to  operate
their  own  SMS  or  to  use  corresponding  services
is
supplied  by 
unconvincing.  As  the  Commission  has  already
established  in  MSG  Media  Service (11),  it  is  not  to
be  expected  that  the  average  pay-TV  subscriber
several
would  wish 
subscriber  management  operators.  It  is  in  the
viewer’s  interest  to  have  as  far  as  possible  a  single
body  dealing  on  his  behalf  with  all  questions
relating  to  the  taking  of  pay-TV  (e.g.  extension  of
to  additional  programmes,
the 
reduction  of  programmes  subscribed  to,  settlement
of the subscription). Whichever service supplier can
provide the largest number of programmes and the
most  attractive  programmes  will  thus  occupy  a
favoured  position  against  which  the  other  service
suppliers  will  have  difficulty 
asserting
themselves.  As  explained  above,  however,  this  will
always  be  Premiere.

to  have  dealings  with 

subscription 

in 

(60)  Programme  suppliers  such  as  ARD  see  the  EPG  as
a  means  of  differentiating  themselves  from  the
competition.  Creative  design  of  EPG  content,  and
the  possibility  for  interactive  services  such  as
games,  is  an  important  competitive  parameter.
Unlike other systems already on the market, which
make  it  easy  to  create  one’s  own  EPG,  the  d-box
EPG  currently  offers  only  rudimentary  functions.

(iv) Given  the  present  structure  of  the  German

cable  network,  cable  operators  would  not  be
able  to  offer  an  alternative  programme
platform  even  if  they  had  access  to  Premiere
programmes

(61)  Lastly,  control  of  the  Premiere  programme  and
marketing  platform  and  the  decoder  infrastructure
gives CLT-UFA and Kirch considerable advantages
in  terms  of  information.  As  Premiere  is  to  carry
out  subscriber  management  and  servicing  not  only
for  Premiere  Digital  but  for  other  programme
suppliers  too, 
information  on
it  would  have 
competitors’  programme  plans  and  customer
structure,  and  more  generally  on  the  behaviour  of
competitors’ 
their
subscriber  management  system  (SMS).  Premiere
would not need access to individual customer data.
Access  to  anonymous  data,  which  might  for
example  give  information  on  the  age  structure  of
the  audience  for  different  programmes,  would
suffice.  With  interactive  pay-TV  services  such  as
pay-per-view,  anonymous  data  could  also  be

subscribers 

entrusted 

to 

(62)  Without access to Premiere’s premium programmes
it  would  in  any  event  be  impracticable  for  private
cable  operators  to  try  to  establish  an  alternative
programme  platform.  Premiere  has 
the  most
attractive  programme  rights  (feature  films  and
sports events), so that other operators, if they tried
to  enter  the  market  at  all,  would  have  to  market
their  own  offering  via  the  Premiere  platform,  and
consequently  would  not  be  available  for  the
programme
construction 
if 
platform.  Even 
their
programme  via 
the  Premiere  platform,  other
programme suppliers would not be able to achieve

they  did  not  offer 

alternative 

an 

of 

(11) See  footnote  5,  paragraph  71.

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the  critical  mass  of  attractive  programmes  needed
to build up an alternative platform, because of the
concentration  of  premium  programmes 
in  the
hands  of  Premiere.

(63)  But  because  of  the  historical  development  of  the
structure  of  cable  distribution  in  Germany,  it
would  not  in  fact  be  possible  for  private  cable
operators  to  establish  an  alternative  programme
platform  even  if  they  did  have  access  to  the
premium  programmes  in  Premiere’s  platform.  In
Germany 
there  are  18,5  million  households
connected  to  cable,  that  is  to  say  over  half  of  all
households  with  TV.  At  network  level  4,  the  level
supply
of  household  distribution  and 
networks,  about  one  third  of  connected  German
households  are  serviced  by  Telekom.  The  other
households  with  cable  are  connected  to  a  large
number  of  sometimes  very  small  private  cable
operators. These private operators normally handle
small  level  4  ‘cable  islands’,  which  are  frequently
not  connected  between 
themselves,  and  are
supplied by a ‘backbone’ level 3 network belonging
to Telekom. Private cable operators also operate to
a  limited  extent  at  level  3.

local 

(66) 

(64)  This means that private cable operators are usually
dependent on upstream level 3 services supplied by
Telekom.  Before  the  private  cable  operators  set  up
an  alternative  programme  platform,  they  would
certainly  have  to  integrate  their  cable  islands  by
means  of  level  3  supply  networks.  As  a  result  of
the  planned  transaction,  however,  the  level  3
networks  operated  by  Telekom  would  not  be
available 
the  creation  of  an  alternative
platform,  so  that  the  cable  operators  would  have
to establish their own level 3. But the private cable
operators  would  not  have  the  financial  capacity  to
carry  out  the  investment  necessary  over  the  whole
territory.

for 

(65)  Even  if  the  private  operators  did  set  up  their  own
level  3,  the  creation  of  an  alternative  programme
platform  would  still  be  at  best  a  technical
possibility.  The  marketing  of  such  a  platform
would  still  pose  problems  which  would  be
extremely  difficult  to  resolve  in  practice,  owing  to
the more or less random geographic distribution of
the  private  cable  networks.  The  fragmentation  of
the  German  cable  television  business  and  the
position  of  Telekom  as  practically 
the  only
level  3  supply  networks  mean
operator  of 

that  regardless  of  the  question  of  access  to
premium  content  the  private  cable  operators  are
not  at  present  in  a  position  to  offer  an  alternative
programme 
competition  with
Premiere.

platform 

in 

(v)  As  the  sole  programme  platform,  Premiere  can
dictate  the  conditions  of  market  entry  for
other  suppliers

In  principle  a  pay-TV  operator  has  a  choice
between  building  up  his  own  infrastructure  or
offering  his  programmes  as  part  of  an  existing
bouquet.  As  has  been  exhaustively  explained  here,
however,  the  construction  of  a  new  infrastructure
is  at  best  a  theoretical  alternative,  certainly  for
operators  who  do  not  possess 
sufficient
programme  resources  to  be  able  to  offer  a
premium  channel.  Canal+,  for  example,  has  a
programme  bouquet  known  as  ‘Multithe´matiques’,
consisting  of  three  digital  pay-TV  programmes,
‘Planet’,  ‘Seasons’  and  ‘Cine  Classics  I  +  II’;  it  has
decided  to  offer  it  via  DF  1,  with  ‘Planet’  forming
part  of  the  DF  1  basic  package,  and  ‘Seasons’  and
‘Cine  Classics  I  +  II’  being  broadcast  via  DF  1’s
platform  but  also  available  on  a  subscription
separate  from  the  DF  1  basic  package.  ‘Seasons’
has  just  under  [1 000  to  5 000]  subscriptions,  and
‘Cine  Classics’ 
to  5 000].
Hollywood  studios  likewise  prefer  to  have  their
own  pay-TV  channels 
in  existing
bouquets.  Kirch  has  concluded  [. . .]  on  behalf  of
DF  1.  Kirch  also  concluded  [. . .].

just  under  [1 000 

included 

(67)  An  outsider  will  usually  be  able  to  gain  access  to
an  existing  programme  bouquet  more  easily  if  he
has  a  choice  between  several  competing  bouquets;
such  a  choice  existed  in  Germany  before  the
planned  concentration.  In  the  absence  of  an
alternative  programme  and  marketing  platform  in
Germany,  however,  potential  competitors  from  at
home  and  abroad  who  want  to  offer  their  own
programmes  and  channels  on  the  German  market
will in future be dependent on access to Premiere’s
platform.  This  means  that  every  pay-TV  operator
is  obliged  to  have  his  programmes  included  in  a
bouquet  to  be  made  up  by  Premiere.  Premiere
thereby  gains  control  of 
these  competitors’
activities,  and  would  be  in  a  position  to  determine
the  conditions  under  which  other  operators
compete  with  it.

L  53/14

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(68)  Premiere  could  refuse  outright  to  allow  a  pay-TV
provider  access  to  the  Premiere  platform,  or  could
impose its own conditions. There has already been
one case which makes it clear how Premiere might
proceed  with  outsiders  wishing  to  offer  their  own
pay-TV  programmes 
the
concentration.  The  [. . .]  between  Kirch  and  [. . .].

in  Germany  after 

(vi) The  fact  that  DF  1  has  had  only  limited
success  so  far  does  not  mean  that  the
conditions  of  competition  will  be  the  same
with  or  without  the  concentration

(71) 

(69) 

(70) 

to 

responded 

the
they 
It  was  not  until 
Commission’s  objections  that  the  parties  asserted
that  the  concentration  would  not  result  in  the
establishment  or  strengthening  of  a  dominant
position for Premiere on the pay-TV market. [. . .].
Premiere already has a subscriber base, so that the
acquisition of DF 1’s subscribers forms an increase
in subscribers and not, as would be the case with a
different  acquirer,  a  new  start-up  in  pay-TV.

In its decision, in Kali and Salz/MdK/Treuhand (12),
in  the  mean  time  upheld  by  the  Court  of  Justice,
the  Commission  recognised  that  a  merger  which
should  normally  be  considered  to  lead  to  the
creation  of  reinforcement  of  a  dominant  position
on  the  part  of  the  acquiring  firm  can  be  regarded
as  not  causing  such  a  position  on  the  market  if,
even  in  the  event  of  the  merger’s  being  prohibited,
the acquirer would inevitably achieve or reinforce a
dominant position. Accordingly, a merger generally
is  not  the  cause  of  the  deterioration  of  the
competitive  structure  if  it  is  clear  that:

—  the  acquired  firm  would  in  the  near  future  be
forced  out  of  the  market  if  not  taken  over  by
another  firm,

—  the  acquiring  firm  would  take  over  the  market
share of the acquired firm if it were forced out
of  the  market,

(12) Commission  Decision  94/449/EC,  OJ  L  186,  21.7.1994,
p.  38,  paragraphs  70  et  seq.;  Judgment  of  the  Court  of
Justice  in  Joined  Cases  C-68/94  and  C-30/95  France  and
others  v.  Commission  [1998]  ECR  I-1375.

—  there  is  no  less  anti-competitive  alternative

purchase.

Moreover,  the  Commission  made  it  clear  in  the
Kali  and  Saltz  Decision  that  this  is  an  exceptional
situation; normally, there would be a presumption
that  a  concentration  which  results  in  the  creation
or  strengthening  of  a  dominant  position  is  the
cause  of  this  deterioration  in  the  competitive
structure.  Consequently,  the  burden  of  proof  of  a
missing  link  of  causality  lies  with  the  merging
firms.

In 

this 

It  should  be  made  clear  from  the  outset  that  the
present  case,  unlike  Kali  and  Saltz,  does  not
involve  a  whole  company  apparently  being  forced
out of the market; in fact, DF 1 GmbH & Co. KG,
as will be shown below, forms only part of Kirch’s
pay-TV  business.  Even 
if  Kirch  completely
abandoned  its  pay-TV  business  the  position  would
not  be  comparable  with  that  in  the  Kali  and  Saltz
case  since  Kirch  as  a  whole  would  not  be
dissolved.  It  would  merely  relinquish  a  part  of  its
extensive  business. 
instance  Kirch’s
abandonment  of  the  pay-TV  market  is  simply  a
management  decision  to  give  up  an  area  of  its
to 
business  which  has  not 
the
management’s  expectations.  Where  the 
‘failing
division  defence’  and  not  the  ‘failing  company
defence’  is  invoked,  particularly  high  standards
must be set for establishing that the conditions for
a  defence  on  the  grounds  of  lack  of  a  causal  link
have  been  met. 
this  were  not  so,  any
concentration involving the disposal of an allegedly
unprofitable  area  of  a  business  could  be  justified
for  merger-control  purposes  by  a  declaration  on
the  part  of  the  seller  that,  without  the  merger,  it
would  be  necessary  to  close  down  the  seller’s
business  in  that  area.

lived  up 

If 

(72)  The  parties’  arguments  do  not  suffice  to  establish
the defence of lack of a causal link. Apart from the
general  considerations  set  out  above,  they  have
failed to adduce any evidence that DF 1 is liable to
be  forced  out  of  the  market,  in  the  short  term  at
least.  A  mere  reference  to  initial  losses  of  DEM
[500  million  to  2  billion],  without  any  details,  is
insufficient  to  establish  why  DF  1  would  have  to
cease trading. Moreover, regarding the initial losses
arising  from  the  contract  between  Kirch  [. . .]  and
from  the  [. . .]  by  Kirch  [. . .],  these  were  incurred
by Kirch, forming investments made with a view to

27.2.1999

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L  53/15

entering 
the  digital  pay-TV  market.  Kirch’s
expectations on entering the market have not been
met,  particularly  as  to  the  number  of  subscribers.
It  should,  however,  be  noted  at  this  point  that  a
crucial  element  in  DF  1’s  lack  of  success  has  been
made  good  in  the  mean  time,  since,  through
agreements  concluded  with  Telekom,  DF  1,  which
for  long  was  accessible  only  by  satellite,  is  now
available  on  cable,  so  that  it  has  a  potential
subscriber-base  of  18,5  million  households  with
television.  After  gaining  access 
the  cable
network,  DF  1  has  been  able  to  increase  its
subscribers from [30 000 to 100 000] in [. . .] 1998
to  [50 000  to  200 000],  i.e.  more  than  [. . .].

to 

(73)  Even  if  Kirch  were  now  to  decide  to  close  down
DF  1  in  view  of  the  high  initial  losses  and  failure
to live up to expected growth rates for subscribers,
its withdrawal from the pay-TV market would not
automatically  follow,  since  DF  1  is  merely  the
marketing  platform  for  Kirch’s  digital  bouquet.
The programme rights for Kirch’s pay-TV business
are  held  by  Taurus,  which  also  produces  at  least
part of the digital channels for DF 1. The technical
services for DF 1’s digital bouquet are provided by
BetaDigital.  BetaResearch  holds  the  rights  to  the
Beta  encryption  technology.  Moreover,  even  if
Kirch  decided  in  the  near  future  to  dissolve  DF  1,
DF  1’s  broadcasting  activities  would  not  be
terminated  immediately.  Instead  DF 1  would  have
to  terminate  its  contracts  with  subscribers  and
contracts  with  the  other  channels  transmitted  in
the DF 1 bouquet and to continue until the end of
the  contractual  period  of  notice.  According  to  the
parties,  DF  1  would  continue  for  about  a  year.
Even  if  DF  1  were  dissolved  immediately,  Kirch
would  therefore  remain  in  a  position,  particularly
in  view  of  its  extensive  programme  resources  in
premium  films  and  sport,  to  review  its  decision
and,  either  alone  or  with  other  proprietors,  to
establish a new marketing platform and operate in
pay-TV.

(74) 

In  the  Commission’s  view,  the  parties’  arguments
that  pay-TV  viewers’  only  option  would  be  to
change  to  Premiere,  so  that  the  market  shares
relinquished  by  DF  1  would  in  any  case  fall  to
Premiere,  are  inconclusive.  If  Kirch  in  fact  closed
down  DF  1’s  operations,  potential  pay-TV

operators  would  have  an  opportunity,  by  using
Kirch’s  pay-TV  broadcasting  rights,  to  enter  the
pay-TV  market  as  competitors  Premiere.  The
competitive  situation  which  would  arise,  with  or
without  the  proposed  concentration,  is  by  no
means  the  same.

that 

is  no 

lack  of  success 

the  negotiations  were  unsuccessful. 

(75)  The  parties  have  [. . .]  that  Premiere  is  the  only
possible  acquirer  for  DF  1,  [. . .].  In  particular,  a
in
mere  reference  to  Kirch’s 
identifying  a  partner  is  insufficient  to  prove  that
there 
less  anti-competitive  alternative
available. The Commission’s statements in the Kali
and  Salz/MdK/Treuhand  Decision  show  clearly
that  it  sets  stringent  requirements  for  establishing
that  there  is  no  possible  alternative  purchaser  to
the acquiring undertaking and this view has in fact
been  upheld  by  the  Court  of  Justice (13).  The
parties’  arguments  are  undoubtedly  insufficient  to
establish 
these  requirements  have  been
fulfilled.  They  have  indicated  neither  the  parties
with  whom  Kirch  has  negotiated  nor  the  reasons
why 
In
particular,  they  have  not  in  fact  proved  that  the
negotiations  failed  because  of  DF  1’s  inadequate
subscriber  base  and  because  the  prospects  of
profits  were  too  poor  in  view  of  the  losses  which
would  arise  on  the  acquisition  of  a  holding.  It  is
consequently 
that
negotiations  between  Kirch  and  interested  third
parties foundered because Kirch was previously not
prepared to relinquish a majority holding in DF 1.
Since,  as  the  proposed  concentration  which  has
been notified shows, Kirch would now accept joint
control,  it  is  entirely  possible  that  negotiations
could  be  successfully  concluded  with  third  parties
on  the  basis  of  a  50/50  holding.  In  those
circumstances,  the  Commission  considers  that
sufficient  evidence  has  not  been  adduced  that  the
acquisition of DF 1, in its entirety or of significant
parts,  by  businesses  other  than  Premiere  can  be
excluded.

impossible 

rule  out 

to 

(76)  Accordingly  the  parties  have  fulfilled  none  of  the
three  conditions  laid  down  by  the  Commission  in
the Kali and Salz Decision as necessary to establish
a defence on the ground of lack of a causal link. In
fact  the  proposed  concentration  therefore  gives
Premiere  a  monopoly  position  on  the  market  in
pay-TV 
consequent
deterioration  in  the  competitive  structure.  Even  if

brings 

about 

and 

a 

(13) Cited  in  footnote  12.

L  53/16

EN

Official  Journal  of  the  European  Communities

27.2.1999

Kirch  terminated  DF  1’s  operations  the  negative
effects  on  competition  would  be  less  severe  than  if
the  concentration  were  carried  through,  since  DF
1’s  assets  and  all  of  its  pay-TV  distribution  rights
would  not  be  transferred  to  Premiere.  This  would
enable  competing  pay-TV  organisations  to  acquire
Kirch’s  pay-TV  distribution  rights  and  enter  the
pay-TV  market  in  competition  with  Premiere.

(c)  Interrelation  between  pay-TV  and  free  TV

(80) 

In  addition,  Mr  Thomas  Kirch,  the  son  of  the
owner  of  Kirch,  has  the  following  holdings:

PRO  7
Kabel  1

60 %
60 %

Between  PRO  7  and  Kirch  there  are  links  other
than  the  family  relationship  between  the  owner  of
the  one  and  the  majority  shareholder  in  the  other.
There  are  also  long-term  business  relations,  as
PRO 7 is estimated to take something approaching
[40 %  to  60 %]  of  its  programme  requirements
from  Kirch.

(1) Free  TV  —  market  structure

(ii) A u d i e n c e   s h a r e s

(81)  The  German 

free  TV  broadcasters  had 

the

following  audience  ratings  in  1996:

(77)  The  market  for  free  TV  in  Germany  is  shared
between the public broadcasters ARD and ZDF on
the  one  hand  and  a  large  number  of  private
broadcasters on the other. The private channels are
‘clusters’  of
essentially  concentrated 
broadcasters.  One  of 
is  made  up  of
broadcasters in which CLT-UFA has holdings. The
other  consists  of  broadcasters  in  which  Kirch  has
holdings,  or  which  belong  to  Kirch’s  sphere  of
influence  for  other  reasons.

in 
these 

two 

(i)  T h e   p a r t i e s ’   h o l d i n g s

Public  channels:

ARD  (first  programme)
ARD  (third  programme)
ZDF

Total

Channels  linked  to  CLT-UFA:

RTL
RTL  2
VOX
Super  RTL

Total

(78)  CLT-UFA  has  the  following  holdings  in  free  TV

channels  in  Germany:

Channels  linked  to  Kirch:

RTL
RTL  2
VOX
Super  RTL

89 %
34,4 %
24,9 %
50 %

Where  CLT-UFA  has  a  minority  holding  it  can  be
presumed  that  it  exercises  joint  control.

SAT  1
PRO  7
Kabel  1
DSF

Total

Other  channels

(79)  Kirch  has  the  following  holdings  in  free  TV

channels  in  Germany:

SAT  1
DFS

43 %
100 %

(A  plan  to  acquire  a  further  16 %  in  SAT  1  has
been  notified  to  the  Bundeskartellamt).

(82)  Thus  the  public  channels  have  about  40 %  of
audiences,  and  private  channels  have  about  60 %.
Private broadcasting is almost entirely in the hands
of  the  two  clusters  CLT-UFA  and  Kirch,  whose
positions  are  equally  strong.

(iii) S h a r e s   o f   t h e   t e l e v i s i o n   a d v e r t i s i n g

m a r k e t

Here  too  it  can  be  presumed  that  Kirch  currently
enjoys  at  least  joint  control  of  SAT  1.

(83)  According  to  the  information  supplied  by  the
parties,  the  separate  channels  have  the  following
market  shares 
terms  of  gross  advertising
turnover:

in 

14,8 %
10,1 %
14,4 %

39,3 %

17,0 %
4,5 %
3,6 %
2,1 %

27,2 %

13,2 %
9,5 %
3,6 %
1,3 %

27,6 %

5,9 %

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/17

Public  channels:

ARD  (total)
ZDF

Total

Channels  linked  to  CLT-UFA:

RTL
RTL  2
VOX
Super  RTL

Total

Channels  linked  to  Kirch:

SAT  1
PRO  7
Kabel  1
DSF

Total

Other  broadcasters

4,4 %
4,4 %

8,8 %

29,9 %
5,5 %
2,8 %
1,0 %

39,3 %

24,1 %
21,8 %
3,8 %
1,8 %

50,7 %

1,3 %

(Market  shares  on  the  basis  of  net  advertising
revenue  are  much  the  same,  with  a  few  minor
differences).

(84)  The  public  channels’  shares  of  this  market  are
quite  different  from  their  audience  shares.  Their
audience  share  is  about  40 %,  while  their  share  of
the advertising market is less than 10 %. The main
reason  for  this  is  doubtless  the  fact  that  media
legislation limits the public channels to 20 minutes’
advertising  a  day,  which  must  be  shown  before
8p.m  Private  broadcasters  are  entitled  to  fill  up  to
15 %  of 
time  with
their  daily  broadcasting 
advertising.  They  may  broadcast  advertising  in
prime  time  after  8pm.

(85)  The  public  broadcasters  are  consequently  financed
mainly  by  licence  fees,  which  amount  to  about
DEM 7 billion a year. This sum is roughly equal to
the  net  advertising  revenue  of  all 
television
operators  on  the  German  television  advertising
market  in  1996.

(2) Further  strengthening  of  Premiere’s  dominant

position  in  pay-TV

(87)  Pay-TV  and  free  TV  are  separate  markets,  as  has
already  been  explained.  There  is  some  interaction
between  them,  however.  The  more  varied  and
attractive  the  programmes  offered  by  the  free
broadcasters,  the  less  incentive  there  is  for  viewers
to  subscribe  to  pay-TV  as  well.  The  existence  of
this  interaction  is  borne  out  by  the  slow  pace  of
development of pay-TV in Germany in comparison
to  France  or  the  United  Kingdom,  which 
is
doubtless  due  primarily 
the  more  varied
programmes  on  offer  in  Germany  from  free  TV.

to 

(88)  The attractiveness of a channel is largely dependent
on  the  programme  rights  available  to  it.  When  a
television  operator  has  a 
in
pay-TV  and  free  TV,  and  also  holds  the  main
programme rights for free TV and pay-TV, he is in
a  position  to  control  the  interaction  between  free
TV  and  pay-TV.  After  the  planned  concentration
CLT-UFA  and  Kirch  will  be  in  this  position.

leading  position 

(i)  C L T - U F A   a n d   K i r c h   c a n   b o t h   b e

e x p e c t e d   t o   t r y   t o   p u r c h a s e   p a y - T V
a n d   f r e e   T V   r i g h t s   i n   c o m b i n a t i o n

(89)  During  the  proceeding  the  parties  declared  that
purchases  of  pay-TV  and  free  TV  rights  were  in
principle to be made separately. Premiere would be
responsible  for  the  purchase  of  pay-TV  rights,  and
CLT-UFA  and  Kirch  would  buy  free  TV.  Only  in
exceptional  cases  would  one  of  the  parties  acquire
pay-TV  and  free  TV  rights  together.

(86)  The  CLT-UFA  and  Kirch  clusters  together  take
about  90 %  of  all  advertising  revenue  in  German
television;  Kirch’s  position,  at  about  50 %,  is
somewhat  ahead  of  CLT-UFA’s  approximately
40 %.  Advertising  revenue  is  concentrated  on  the
market  leader  RTL  and  on  SAT  1  and  PRO  7.
These  three  together  have  a  market  share  of
76 %.

(90)  After a press report appeared which claimed, citing
internal  Bertelsmann  documents,  that  pay-TV  and
free  TV  were  to  be  coordinated,  Bertelsmann
modified its earlier statements. It publicly conceded
that  cooperation  between  the  free  TV  channels
linked  to  CLT-UFA  and  Premiere  was  being
pursued as a logical business goal. The purchase of

L  53/18

EN

Official  Journal  of  the  European  Communities

27.2.1999

rights  was 
included.  Shortly  afterwards,  Dr
Dornemann,  the  Bertelsmann  director  responsible
for television, detailed the advantages of combined
purchasing  of  free  TV  and  pay-TV  rights  in  an
interview (14).

platform 

access  to  a  family  of  channels  and  to  the  only
once 
pay-TV 
the
concentration  has  made 
joint  owner  of
Premiere. It can therefore be anticipated that Kirch
too  will  seek  to  purchase  pay-TV  and  free  TV
rights  in  combination.

in  Germany, 
it  a 

(91)  From  a  business 

in 

standpoint,  a  coordinated
approach  to  the  purchasing  of  programme  rights
by  CLT-UFA  and  Premiere  does  indeed  seem  the
most  probable  strategy.  Through  Premiere  and  the
free  TV  channels 
its  broadcasting  group,
CLT-UFA  carries  on  all  forms  of  exploitation  of
programme  rights,  i.e.  pay-per-view,  pay-TV,  free
TV (first viewing) and free TV (second viewing). It
is  therefore  an  obvious  step  to  acquire  the  rights
for 
the  entire  sequence.  This  would  enable
CLT-UFA  to  use  the  rights  to  their  strategic
maximum.  For  example,  rights  to  sport  can  be
exploited  in  such  a  way  that  the  most  significant
events  are  broadcast  on  pay-TV  (e.g.  football
finals)  while  smaller  events  are  shown  on  free  TV.
In  the  case  of  film  rights  the  period  between
transmission  on  pay-TV  and  the  windows  for  first
and  second  showings  on  free  TV  can  be  fixed  as
part  of  an  overall  strategy.

for 

the 

(94)  The  price  charged  for  pay-TV  rights  is  normally
determined  by  the  number  of  subscribers,  subject
to a specified minimum. With Premiere’s increasing
numbers of subscribers, pay-TV rights are growing
in  importance  as  compared  with  free  TV  rights.
Their  strategic  significance 
television
business  of  CLT-UFA  and  Kirch  as  a  whole  is
likewise  rising.  Since  Premiere  is  operated  jointly
by  CLT-UFA  and  Kirch,  however, 
it  would
scarcely  make  sense  if  the  two  companies  were
invariably  to  make  separate  purchases  of  pay-TV
and free TV rights at a time when pay-TV business
was growing steadily more significant in relation to
free  TV.  But  pay-TV  business  will  indeed  be
growing  in  importance,  at  least  according  to  the
business  plan  for  Premiere  stipulated 
in  the
consortium agreement: it is planned that Premiere’s
net  turnover,  [. . .].

(92)  At present it is only in some cases that the rights to
the  Hollywood  majors’  films  in  particular  are  sold
as  a  package  covering  all  stages  of  exploitation;
but this could change if purchasers appear who are
able to handle the entire sequence. In addition, the
demand-side  power  created  by  the  combination  of
the  intense  programme  requirements  of  a  Premiere
digital  bouquet  and  CLT-UFA’s  free  TV  channels
might well induce rights suppliers to sell the rights
for  pay-TV  and  free  TV  together.

(ii) C L T - U F A   a n d   K i r c h   w i l l   b e   a b l e   t o

i m p l e m e n t   p r o g r a m m e   s t r a t e g i e s   f o r
f r e e   T V   c h a n n e l s   a i m e d   a t   s e c u r i n g
p a y - T V   s u b s c r i b e r s   f o r   P r e m i e r e
D i g i t a l

(93)  Bertelsmann’s  statements  concerning  combined
purchasing  of  rights  for  pay-TV  and  free  TV
therefore  seem  convincing  and  there  appears  to  be
no  reason  why  Kirch  should  not  pursue  a  similar
strategy.  Like  CLT-UFA,  Kirch  will  also  have

(95)  The  parties  have  repeatedly  stated  that  Premiere’s
development  as  a  platform  for  digital  pay-TV  will
require a major investment. In the abovementioned
Süddeutsche Zeitung interview (15), Dr Dornemann
spoke  of  investments  amounting  to  DEM 13,5
billion  up  to  the  year  2007  and  start-up  losses
amounting  to  DEM 2,5  billion.  It  is  clear  that
CLT-UFA and Kirch therefore have a basic interest
in  securing  as  many  subscribers  as  possible  for
Premiere.  In  view  of  the  interrelation  described
above between pay-TV and free TV, harmonisation

(14) Süddeutsche  Zeitung,  25  February  1998,  p.  2.

(15) See  footnote  14.

27.2.1999

EN

Official  Journal  of  the  European  Communities

L  53/19

of 
the  programming  of  Premiere  and  of
CLT-UFA’s  and  Kirch’s  free  TV  channels  might
well  be  a  significant  step  towards  attainment  of
this  aim.

(96)  This 

all 

involves 

first  of 

arranging 

the
programming of Premiere and the free TV channels
so  that  they  complement  each  other.  As  has  been
explained above, in the case of sporting events, for
example,  minor  fixtures  such  as  the  initial  rounds
in  football  competitions  can  be  used  to  arouse  the
interest  of  spectators  on  free  TV,  and  then  the  big
attraction,  the  final,  can  be  broadcast  on  pay-TV
or  pay-per-view.  So  far  as  Bertelsmann’s  television
business  is  concerned,  this  sort  of  complementary
programming  has  been  facilitated  by  the  1997
merger  between  CLT  and  UFA,  in  that  all  its
television  activities  are  now  grouped  together  in
the  hands  of  CLT-UFA,  which  has  a  majority
holding  in  the  biggest  free  TV  broadcaster,  RTL.

(97) 

In  the  medium  term  at  least,  with  the  increasing
significance  of  pay-TV,  CLT-UFA  and  Kirch  have
an interest in limiting the attractiveness of free TV
channels  so  as  to  induce  as  many  viewers  as
possible  to  subscribe  to  pay-TV.  Of  course  a
strategy of this kind would normally carry the risk
that  an  increase  in  subscribers  would  be  gained  at
the  expense  of  a  fall  in  advertising  income.  But  in
the present case this danger is a limited one. As has
been  explained  above,  private  free  TV  channels
almost  all  belong  to  one  of  the  two  groups
associated  with  CLT-UFA  and  Kirch,  which
together  have  about  95 %  of  viewers  of  private
television.  A  definite  strategy  on  the  part  of
CLT-UFA  and  Kirch  to  make  free  TV 
less
attractive  could  only  displace  advertising  business
to  public  broadcasters.  However,  since  the  latter,
with  their  compulsory  restriction  of  advertising,
cannot  extend  their  advertising  times,  and  are  not
allowed to broadcast any advertising in prime time,
it is most unlikely that advertising business will be
displaced  to  them.

(98) 

If  CLT-UFA  and  Kirch’s  free  TV  channels  are
together  made  less  attractive,  a  major  loss  of

advertising  income  can  be  anticipated  only  if
advertisers, confronted with falling ratings, move a
large  proportion  of  their  advertising  budgets  from
television  to  other  media,  primarily  printed  media.
However,  this  is  probable  only  if  there  is  a
dramatic  fall  in  viewer  figures.  The  daily  viewing
rates  for  private  channels  in  Germany  rose  by
about  15 %  from  1993  to  1996.  In  the  same
period,  advertising  turnover  rose  by  35 %  at  1993
figures  and
prices.  This  shows 
advertising  intensity  are  not  necessarily  evenly
related. In addition, any loss of advertising income
to  CLT-UFA  and  Kirch  would  have  to  be  set
against  the  profit  from  lucrative  pay-TV.

that  viewer 

(3) Conclusion

(99)  The  combined  acquisition  of  pay-TV  and  free  TV
rights  and  the  complementary  programming  which
are  foreseeable  will  lead  to  a  further  strengthening
of  Premiere’s  dominant  position  on  the  market  in
pay-TV.

(d) Conclusion

(100)  For  the  reasons  described  above 
the 

it  must  be
information
the  basis  of 
anticipated  on 
currently  available  that  the  intended  concentration
will give Premiere a dominant position on a lasting
basis  on  the  market  in  pay-TV  in  Germany.  The
combined acquisition of pay-TV and free TV rights
and  the  complementary  programming  which  are
foreseeable  will  lead  to  a  further  strengthening  of
Premiere’s  dominant  position  on  the  market  in
pay-TV.

(101)  If  the  market  for  the  provision  of  pay-TV  is  taken
to  be  the  entire  German-speaking  area,  Premiere
can  likewise  be  expected  to  enjoy  a  dominant
position  on  a  lasting  basis.  Basically  the  same
considerations apply to this area as for the German
market.  However,  in  Austria  for  instance,  unlike
Germany, the cable networks are exclusively in the
hands of private operators. In Germany, ownership
of  the  cable  TV  network  is  fragmented,  and
Telekom  is  virtually  the  sole  operator  of  level  3
supply  networks,  with  the  result  that  private  cable
operators,  even  supposing  they  had  access  to
premium  content,  are  unable 
to  offer  any
alternative  programme  platform  to  compete  with
Premiere;  in  Austria,  on  the  other  hand,  the  major
private  cable  operators  would,  theoretically  at

L  53/20

EN

Official  Journal  of  the  European  Communities

27.2.1999

least,  be  able  to  put  together  an  alternative
programme  platform  limited  to  their  region.  But
since  in  its  dealings  with  Telekom  in  Germany
Premiere  has  succeeded  in  having  the  transport
model  adopted  for  cable,  it  must  be  expected  that
it  would  refuse  to  have  its  programmes  marketed
by  cable  operators  in  the  other  parts  of  the
German-speaking  area  too.  This  has  been  its
previous  strategy  for  its  analogue  programme;  for
example,  in  Austria  it  has  hitherto  refused  to  have
its  programme  marketed  directly  by 
cable
operators.  In  the  autumn  of  1997  it  did  retreat
from its requirement that marketing be carried out
by  Premiere  alone,  and  expressed  a  willingness  to
sell  its  analogue  programme  to  a  major  Austrian
cable  network  operator.  Nevertheless,  shortly
before  the  contract  was  due  to  be  concluded,
Premiere  withdrew  its  offer.  It  must  be  expected
after all that Premiere, after the concentration, will
become  and  remain  the  only  programme  and
marketing  platform  in  the  German-speaking  area
as  a  whole,  since  no  other  enterprise  holds  the
necessary  programme 
to  create  a
programme  platform,  and  Bertelsmann  and  Kirch
control  the  decoder  infrastructure.

resources 

in  providing 

transmission  of  signals  on  the  cable  network.
CLT-UFA,  Kirch  and  Telekom  have  stipulated  in
the agreement on the restructuring of BetaResearch
that 
the
transmission  of  digital  TV  programmes  on  its
broadband  cable  networks  Telekom  will  use  only
Beta  access  technology  on  the  basis  of  the  d-box
decoder.

technical  services 

for 

(b) Lasting  nature  of  the  dominant  position

(105)  In  the  market  in  technical  services  for  the  digital
transmission  of  data,  at  any  rate  by  satellite,
BetaDigital  will  secure  a  monopoly  position  in  the
German-speaking  area  on  a  lasting  basis.  It  must
also  be  anticipated  that  Telekom  will  remain  the
sole 
the
technical 
transmission  of  pay-TV  over  the  cable  network  in
Germany,  and  in  this  area  too  will  secure  a
monopoly  position  on  a 
lasting  basis.  This
assessment  is  based  on  the  considerations  set  out
below.

supplier  of 

services 

for 

3.  The  market  in  technical  services  for  pay-TV

(a)  BetaDigital  and  Telekom’s  monopoly  position

(i)  Following  the  concentration,  d-box  technology
will  in  practice  become  the  digital  standard  in
the  German-speaking  area

(102)  The 

satellites.  As  a 

concentration  will  give  BetaDigital  a
monopoly  on  a  lasting  basis  in  technical  services
for 
the  parallel
concentration  of  Telekom  and  BetaResearch,
Telekom  will  secure  a  monopoly  in  the  operation
of  conditional  access  for  cable.

result  of 

(103)  BetaDigital is already the only supplier of technical
services  for  the  digital  transmission  of  signals  by
satellite. According to the statements of the parties,
Bertelsmann  also  provides  small-scale,  technical
services  for  pay-TV  through  Cologne  Broadcasting
Centre GmbH, but further details of these activities
have  not  been  provided.

(104)  In  the  near  future  Telekom  will  also  be  the  sole
the  digital

technical  services 

supplier  of 

for 

to  acquire 

(106)  Pay-TV  requires  special  technical  infrastructure.
This  can  be  provided  either  by  pay-TV  operators
or  by  other  parties,  mainly  cable  operators.
Because  of  the  structure  of  the  cable  networks  in
Germany, private cable operators are by themselves
unable  to  provide  the  technical  infrastructure  for
the  transmission  of  pay-TV.  This  is  because  their
‘cable  islands’  are  mostly  too  small  to  justify  the
investment  necessary 
their  own
conditional  access  and  alternative  decoder  system
for  pay-TV.  Moreover,  private  cable  operators
control  only  parts  of  the  level  3  and  4  networks
involved  in  the  distribution  of  cable  television.  At
network  level  3,  i. e.  from  the  cable  head-end,
where the digital programme signal is received and
fed into the cable network, to the boundary of the
individual  house, 
the
it
networks  belong  to  Telekom.  This  makes 
impossible  for  private  cable  operators  to  develop
alternative facilities for the transmission of pay-TV
without  involving  Telekom.

the  great  majority  of 

(107)  After  the  concentration,  Premiere  will  distribute
digital  television  through  d-box  technology  and

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d-box  decoders.  Telekom  will  supply  services  for
pay-TV  by  cable  on  the  basis  of  Beta  access
technology  and  d-box  decoders.  Thus 
those
companies  which  would  have  been  qualified  to  set
up  an  infrastructure  for  digital  television  and  to
provide the corresponding services have committed
themselves  to  Beta  access  technology  based  on  the
d-box  decoder.  It  must  therefore  be  accepted  that,
in  the  German-speaking  area,  there  will  be  no
alternative  technical  platform  for  digital  television
in  the  foreseeable  future.

have  stated  that  a  proprietary  conditional  access
system  was  developed  for  security  reasons.  Other
pay-TV operators, such as Canal+ and BSkyB, who
already have experience in the pay-TV market, also
prefer  to  rely  on  a  proprietary  conditional  access
system  as  it  appears  to  afford  better  protection
against  breaches  of 
security  of  data
transmission.  Under  the  DVB  standard,  there  are
two  processes  available  to  avoid  a  viewer  of
subscriber pay-TV with different conditional access
systems  having  to  use  a  number  of  decoders,  i. e.
simulcrypt  and  common  interface  (CI).

the 

(ii) The  monopoly 

programme  platform 
obstacle 
to 
technology

the 

position 

of  Premiere’s
long-term
introduction  of  other

forms  a 

(108)  The 

if 

installation  of  an  alternative 

technical
infrastructure  for  the  transmission  of  pay-TV
would require a major investment. However, other
potential suppliers would be prepared to make that
investment  only 
there  were  corresponding
opportunities  for  market  penetration.  That  would
be  so  only  if  it  were  possible  for  a  second  pay-TV
operator  to  set  up  in  Germany.  Such  an  operator
could  either  create  his  own  technical  platform,  on
the  basis  of  alternative  access  technology,  or  offer
another  party  an  opportunity  of  developing  a
technical  infrastructure.  But  as  has  already  been
said,  it  is  improbable  that  a  second  pay-TV
operator  will  enter  the  market,  given  Premiere’s
established  position,  with  its  subscriber  base  and,
especially,  its  programme  resources.

(109)  Moreover, 

and 

access 

alternative 

decoder
technology  could  be  developed  only  for  satellite
transmission,  since  CLT-UFA,  Kirch  and  Telekom
have  stipulated  in  the  restructuring  agreement  that
Telekom,  in  providing  technical  services  for  digital
transmission  of  TV  programmes  on  its  broadband
cable  network,  will  rely  exclusively  on  Beta  access
technology on the basis of the d-box decoder. This
means  that  potential  pay-TV  suppliers  and  other
potential  suppliers  of  conditional  access  services
would  in  any  case  be  obliged  to  use  Beta  access
technology  and  the  d-box  decoder  as  far  as  the
Telekom  cable  network  is  concerned.

(iii) All  potential  conditional  access  operators  will
be  dependent  on  BetaResearch’s  licensing
policy

(110)  BetaResearch  is  the  licenser  of  the  conditional
access  system  applied  in  the  d-box.  The  parties

(111)  With CI, widely varying conditional access systems
can be used in the same decoder, enabling all other
pay-TV  operators  and  service  providers  to  operate
access controls using the existing decoder base. It is
not  necessary  with  CI,  as  it  is  with  simulcrypt,  to
conclude  an  agreement  with  the  person  who
installed  the  decoder  base  on  the  linking  of  one’s
own  access-validation  system  with  the  proprietary
access  system  of  the  decoder.  If  a  proprietary
conditional  access  is  to  be  used,  there  must  be
discrimination-free  access  to  the  system.  In  the
Commission’s  view,  this  requires  that  the  licenser
of  the  decoder  technology  be  able  to  conduct  his
business without being influenced by a programme
supplier.  In  the  present  case  the  licenser  is  not
independent,  since  BetaResearch 
is  controlled
mainly  by  enterprises  which  have  their  own
interests  as  programme  suppliers.

(112)  If  all  actual  and  potential  suppliers  of  digital
pay-TV,  and  Telekom  as  supplier  of  technical
services  for  cable,  have  committed  themselves  to
Beta access technology and the d-box decoder, it is
impossible  for  an  alternative  decoder  base  to  be
in  Germany.  Any  other  potential
established 
supplier  of  conditional  access  services  will  have  to
the  d-box  decoder.  The  d-box  uses  a
use 
by
proprietary 
system 
technical
BetaResearch.  Potential  suppliers  of 
services for pay-TV would therefore have to seek a
licence 
from
access 
BetaResearch.  This  is  the  case  with  both  satellite
and  cable  transmission.  In  managing  conditional

technology 

for  Beta 

developed 

coding 

L  53/22

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27.2.1999

for 

and 

cable, 

satellite 

access 
however,
BetaResearch  would  have  no  interest  in  exposing
BetaDigital  or 
to
competition on the market in technical services for
its
pay-TV.  BetaResearch  might  therefore  use 
licensing  policy  to  hamper  other  service  suppliers’
access  to  the  market.

joint  parent  Telekom 

its 

(iv) Control  of  the  decoder  infrastructure  gives
Bertelsmann/Kirch  control  of  possible
applications  based  on  the  d-box

typical  example  of 

(113)  An  application  programme  interface  (API)  allows
third  parties  wishing  to  produce  an  independent
application to have access to the decoder operating
system.  A 
this  kind  of
independent  application  is  the  EPG,  which  shows
the choice of programmes available in an on-screen
menu  form.  At  present  d-boxes  do  not  have  a
publicly  available  version  of  the  d-box  operating
system  interface.  This  means  that  other  persons
wishing  to  use  their  own  independent  applications
through  the  d-box  would  have  to  have  it  inserted
into 
the  operating  system’s  source  code  by
BetaResearch.

(114)  According  to  the  parties,  BetaResearch 

to 

present 

impossible 

is  to
develop  an  API  for  the  d-box  and  present  the
interface  by  the  end  of  1998  at  the 
latest.
However,  details  of  licensing  policy,  particularly
the level of royalties, is not available. It is therefore
at 
assess  whether
BetaResearch’s API, compared to the APIs of other
suppliers  such  as  OpenTV  or  MediaHighway,  will
be  made  available  on  market  conditions.  But  it  is
safe  to  say,  since  the  introduction  of  the  d-box  to
the  market  is  to  take  place  in  the  near  future,  that
limited
the  API  will  probably  have  only  a 
operational  scope.  This  appraisal  is  corroborated
by  the  fact  that  other  suppliers  have  continuously
improved  their  APIs  over  the  years  after  their
introduction  on  the  market  in  order  to  provide  a
full  use  of  the  operational  scope  of  decoder
technology  and 
in  this  way  to  promote  the
development  of  advanced  applications.

functions  which  are  independent  of  the  API.  This
makes  possible  the  development  and  operation  of
an application independent of the API. The parties
contended  that  the  DVB  specification  work  on  a
standardised  API  which  works  like  a  VM  will
probably be concluded by mid-1998. BetaResearch
would 
start  production
development,  which  will  probably  take  about
another  six  to  nine  months.

then  be  able 

to 

(116)  As  long  as  a  standardised  API  is  not  yet  available,
the  d-box  API  will  allow  only  proprietary
applications,  so  that  a  licence  for  the  API  will  be
necessary  to  produce  an  application.  The  parties
also  state  that  the  functions  of  the  future  API  can
be  extended  at  the  request  of  the  licensee  of  the
API.  However,  the  licensee  would  then  be  obliged
to provide detailed information on why and how a
particular  function  should  be  made  available.
BetaResearch  would  decide  whether  this  should  be
done.  It  can  be  assumed  that  only  those  functions
would  be  adopted  which  are  in  the  interest  of
BetaResearch,  i. e.  of  its  controlling  enterprises.  If
the  function  is  to  be  introduced,  the  development
costs  will  be  borne,  wholly  or  in  part,  by  the
licensee.  The  licensee  has  no  choice  in  the  matter,
since BetaResearch is the only licenser of the d-box
API.  Moreover,  the  licensee  has  no  means  of
ensuring 
at
BetaResearch is carried out rapidly. In this respect,
it  is  already  doubtful  whether  BetaResearch  will
have enough development capacity at all to take on
development  work  from  licensees.  It  will  above  all
have 
the  respective  acceptance
deadlines for new API versions and use its capacity
accordingly  and  not  for  the  rapid  execution  of
additional development work for licensees who are
competing  with  Premiere.

development  work 

focus  on 

that 

the 

to 

(115)  According  to  the  parties,  the  d-box  API  will  have
two  facilities  for  running  applications.  In  the  first,
the  application  is  operated  using  the  functions  of
the  API;  these  are  known  as  ‘native  applications’.
These  applications  can  operate  only  on  the  d-box.
In the second, a ‘virtual machine’ (VM) is built on
the  API,  transforming  specific  API  functions  to

(117)  Moreover,  the  d-box  API,  compared  to  other
existing systems already on the market, will not at
first  have  comprehensive  programming  assistance
and  tools  to  allow  advanced  applications  to  be
introduced  quickly  and  cheaply,  either  by  the
licensee  himself  or 
service
provider.  In  this  way  d-box  API  licensees  are

through  another 

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L  53/23

compelled to leave all work on the development of
applications  to  BetaResearch,  since  it  is  the  only
firm able to carry out advanced developments. The
alternative, i. e.  that  a  licensee  should  produce  the
application  itself,  is  excluded  from  the  outset,
because of cost and especially the licensee’s lack of
detailed  knowledge  of  the  d-box  API.

(c)  Conclusion

the  parties  have  made 

technology.  Lastly,  allowance  should  be  made  for
programme  investments,  which  would  amount  to
several  DEM  billion  over  the  next  few  years.
However,  after 
the
investments  to  establish  a  digital  infrastructure,
other  persons  would  be  able  to  provide  a  vast
range  of  supplementary  services  at  relatively  low
cost,  particularly  as  viewers’  psychological  barriers
to  additional  payments  are  progressively  lowered
with  the  penetration  of  digital  pay-TV.

to 

information 

currently  available 

(118)  On the foregoing grounds, and in accordance with
the 
the
Commission, it is to be expected that the proposed
concentration  will  give  BetaDigital  a  dominant
position  on  a  lasting  basis  on  the  market  in
technical  services  for  satellite  pay-TV,  and  that
given  the  fact  that  Bertelsmann  and  Kirch  will
control  the  decoder  infrastructure,  it  will  also
further strengthen Premiere’s dominant position on
the  pay-TV  market. 
In  addition,  Premiere’s
dominant  position  on  the  pay-TV  market  will
further  strengthen  BetaDigital’s  dominant  position
on  the  market  in  technical  services  for  satellite
pay-TV  in  the  German-speaking  area.  If  it  is
considered  that  there  is  one  market  in  technical
services  for  both  satellite  and  cable  TV,  the
concentration,  taken  together  with  the  parallel
concentration  between  Deutsche  Telekom  and
BetaResearch, will produce a dominant duopoly on
this  broader  market  in  the  German-speaking  area.
Neither  BetaDigital  nor  Telekom  will  encounter
serious  competition  on  this  market.  In  view  of
their  common  technology  and  of  their  legal  links
with  BetaResearch,  there  are  no  grounds  to  expect
that  there  will  be  competition  between  BetaDigital
and  Telekom.

VI.  PROMOTING  TECHNICAL  AND  ECONOMIC
PROGRESS

(120)  The  parties’  claims  give  rise  to  considerable  doubt
in  practical  terms.  It  may  well  be  the  case  that,  in
the  first  years  of  digital  television,  the  necessary
decoders will be leased by viewers and not bought,
which  means  that  they  will  have  to  be  financed  in
advance.  However,  the  financing  costs  cannot
possibly be on the scale indicated by the parties. A
d-box is currently leased at about DEM [10 to 30].
In Annex 2(c) to the agreement between CLT-UFA
and  Taurus,  Nokia’s  average  purchase  price  for  a
d-box  for  the  period  August  1995  to  December
1999  is  estimated  at  around  DEM  [400  to  1 000].
Given a monthly leasing charge of DEM [10 to 30]
(DEM  [100  to  400]  per  year),  the  purchase  price
to  be  financed  in  advance  would  be  written  off
after [1 to 5] years. It is only over this period that
the  corresponding  interest  would  be  payable  and
this would in any event be offset by the increasing
leasing instalments. After [1 to 5] years the leasing
of  a  decoder  would  show  a  profit.  Premiere’s
business  plan  dated  7  November  1997  [. . .]  tallies
with this view. In the plan, the heading for decoder
coverage  for  1998  gives  costs  at  DEM  [100  to
200]  million,  which  steadily  fall  to  DEM  [10  to
30]  million  up  to  2002.  For  the  total  five-year
period,  costs  thus  amount  to  DEM  [200  to  500]
million,  assuming  [2  to  5]  million  subscribers.  The
parties  have  obviously  omitted  to  include  the
leasing rates in their calculation of the costs of the
decoder  bases.  In  any  event  these  costs  are  not  on
the  scale  represented  by  the  parties.

(119)  The  parties  claim  that  it  is  only  by  pooling  the
resources  of  Bertelsmann  and  Kirch  that  the
infrastructure  necessary  for  the  breakthrough  of
digital  television  can  be  established.  Building  up  a
decoder  base  would  require  about  DEM  [500  to
1 000]  per  household  connected  so  that,  with  an
estimated  [3  to  10]  million  subscribers  over  10
years,  the  cost  would  be  around  DEM  [1,5  to  10]
billion.  There  would  be  a  further  investment  of
DEM  [50 to 300]  million  for setting  up the digital
transmission  centre  and  for  conditional  access

(121)  The parties claim that only Bertelsmann and Kirch
together  are  capable  of  supplying  the  attractive
programmes  necessary  for  the  breakthrough  of
digital  television,  but  no  further  substantiation  for
this  claim  is  provided.  The  claim  may  well  be
correct  if  Kirch,  on  the  one  hand,  completely
withheld  its  programme  resources,  particularly  its
premium  rights,  from  Premiere  and,  on  the  other
hand,  got  into  financial  difficulties  as  a  result  of

L  53/24

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27.2.1999

such  a  blockade  policy  based  on  its  wide-ranging
financing  commitments  arising  from  the  output
deals  concluded  by  it.  However,  such  a  situation,
which  was  looming  before  the  conclusion  of  the
agreement  between  Bertelsmann  and  Kirch,  will
not  necessarily  occur.

if 

(122)  Lastly,  if  the  parties,  by  establishing  a  digital
infrastructure  and  jointly  offering  an  attractive
programme,  are  successful  in  securing  the  general
acceptance  of  digital  television,  as  has  been
indicated  above,  they  will  in  fact  wall  off  the
future market in digital pay-TV and bring it under
their  control  on  a  lasting  basis.  The  concentration
therefore  makes  it  impossible  for  this  market  to
develop  on  a  competitive  basis.  Even 
it
contributes  to  the  general  acceptance  of  digital
technical  and
thus  promotes 
television  and 
economic  progress,  that  contribution  is  irrelevant
under  the  Merger  Regulation.  In  this  connection  it
should  be  stressed  that  the  criterion  of  technical
and economic progress contained in Article 2(1)(b)
is  subject  to  the  proviso  that  it  does  not  form  an
obstacle  to  competition.  Moreover,  it  is  extremely
doubtful whether the concentration in fact makes a
positive  contribution  to  technical  and  economic
progress. Since the parties will wall off and control
the  market,  other  potential  providers  of  digital
pay-TV  and  multimedia  services  will  be  unable  to
develop  freely  and  without  restriction.  There  is
reason  to  fear  that  technical  and  economic  aspects
of  the  development  of  digital  television  and  other
digital  services  will  be  adversely  affected  by  this.

VII.  UNDERTAKINGS  PROPOSED  BY  THE
PARTIES

each  case,  25 %  of  the  pay-TV  rights  to  the  [. . .]
categories.  The  price  for  the  pay-TV  rights  is
proportionate  to  the  contracts  concluded  with  the
Hollywood  studios,  i. e.  to  the  largest  pay-TV
supplier  in  each  case  on  the  relevant  market  in
each  case.  The  Hollywood  studios  themselves  are
excluded  from  the  procedure  in  their  capacity  as
customers.  The  tender  for  the  selection  and  award
of  25 %  of  the  output  contracts  for  pay-TV  rights
is  valid  only  as  long  as  Premiere  has  access  to  five
of  seven  output  deals  for  pay-TV  rights,  and  until
1  January  2003  at  the  latest.

(b) Bouquet  structure

(125)  Premiere  will  open  up  its  scheduling  by  no  longer
making the subscription to its own basic package a
condition  for  subscription  to  the  film  and  sports
channels. This undertaking will apply as long as no
second  platform  with  a  premium  package  has
established  itself  on  the  market,  and  until  1
January  2003  at  the  latest.

(c)  Cable  operators

(126)  The  parties 

to 

the  merger  are  prepared 

to
cooperate with the cable operators as regards sales.
As  well  as  advertising  for  new  customers,  this
information  and  support.
includes  marketing 
Customer 
still  be  Premiere’s
responsibility,  however.  Cable  operators  will
receive  appropriate  financial  compensation  for
their  efforts.

relations  will 

1.  Undertakings

(d) Pay-TV  and  free  TV  rights

(123)  By  letters  dated  28  April  and  4  May  1998  the
parties  suggested  a  series  of  undertakings  intended
the  proposed
to  remove 
concentration.  These  consist  basically  of 
the
following  points.

the  doubts  about 

(127)  Premiere  will  itself  buy  the  pay-TV  rights  it  needs
and  will  not  acquire  any  free  TV  rights,  so  that
there  is  no  bundling  through  Premiere  of  the
purchase  of  pay-TV  and  free  TV  rights.

(a)  Programme  rights

(e)  BetaResearch

(124)  For  a  certain  period,  25 %  of  the  pay-TV  rights
from Kirch’s and CLT-UFA’s output deals with the
Hollywood studios [. . .] will be held open for third
parties.  In  each  case,  the  selection  procedure  for
the  next  year  but  one  takes  place  every  year.  The
25 %  of  the  output  of  each  studio  comprises,  in

(128)  Telekom  will  set  a  technical  council  of  experts,
which  will  be  accessible  to  all  firms  involved  in
digital  television.  The  council’s  recommendations
will be implemented in accordance with the already
existing  agreement  between  Bertelsmann,  Kirch,

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L  53/25

Telekom,  ARD  and  ZDF.  The  shareholders  of
BetaResearch  are,  moreover,  prepared  to  allocate
25 %  of  the  company’s  capital  to  third  firms  via
an  intermediate  holding  company.  No  veto  rights
will  be  associated  with  this,  however.  The  present
veto rights of Bertelsmann, Kirch and Telekom will
continue. The leading role of Kirch, in particular as
regards  management 
again
emphasised  by  the  parties.

occupancy, 

is 

(129)  BetaResearch  will  on  request  immediately  grant
every customer who intends to perform encryption
services  for  itself  or  for  third  parties  a  conditional
access  licence  (compulsory  licence)  on  the  basis  of
a  generally  accessible  standard  contract.  If  no
agreement 
in
particular the licence fees, an arbitration body will
take  a  final  decision  as  to  their  appropriateness.

the  conditions, 

is  reached  on 

(130)  BetaResearch  undertakes 

in 

the 

to  disclose 

the  API
interface  of  the  d-box  network  (‘native  API’)  by
the  end  of  1998  and  to  defer  to  an  arbitration
body 
licensing  disputes.
BetaResearch  also  undertakes  to  supplement  the
native API with the interface to be standardised by
the DVB, as soon as the DVB has approved such a
standard.  BetaResearch,  moreover,  will  adopt  all
future  DVB  standards.

event  of 

as  Premiere.  Since  this  is  based  on  the  number  of
Premiere  subscribers  (with  a  minimum  guarantee
for  a  certain  number  of  subscribers),  a  newcomer
would  run  a  considerable  risk,  which  would
continually increase with the expected rapid rise in
the  number  of  Premiere  subscribers.  According  to
the  parties’  submissions,  an  interested  third  party
has to decide within a certain period every year the
scale  on  which  it  wishes  to  acquire  rights  in  the
next year but one. Thus the first time a third party
could  acquire  rights  would  be  for  the  year  2000.
But,  in  the  year  2000,  Premiere,  according  to  its
business  plan,  will  have  about  [. . .]  million
subscribers,  on  the  basis  of  which  figure  the  price
would be calculated. A third party would therefore
have to pay about USD 2,3 million per film. In this
respect  it  should  be  stressed  that,  as  customers
(repurchasers),  the  Hollywood  studios  themselves
have  been  left  out  of  the  undertaking.  Thus  the
parties have in advance excluded the only potential
customers  who  could  probably  bear  the  risk
associated with acquiring the rights. Moreover, the
undertaking  is  subject  to  a  time  limit  (end  of  the
year 2002), so the rights would be granted anyway
for  a  period  of  three  years  only.  Equally,  the
undertaking  covers  only  the  output  deals  with  the
Hollywood  majors.  Sports  rights,  which  with
premium  films  are  crucial  programme  content  for
premium  channels,  are  not  included.  All  things
considered, the undertaking is not likely to provide
an  opportunity 
second
programme  platform.

establishing 

for 

a 

(131)  BetaResearch  will  grant  manufacturing  licences  to
any 
standardised
interested  manufacturer  on 
conditions and defer in the event of disputes about
those  conditions 
to  an  arbitration  body.  A
‘technical  verification  test’  by  BetaResearch  is  the
condition  on  which  the  decoders  may  be  supplied
on  the  market.  Manufacturers  may  be  certified
after  two  to  three  years  by  independent  third
parties.

(f)  BetaDigital

(132)  Where  third  parties  wish  to  use  the  services  of
BetaDigital  and  agreement  about  the  conditions  is
not reached, BetaDigital will likewise submit to an
arbitration  body,  which  will  take  a  final  decision.

2.  Assessment

(a)  Programme  rights

(b) Bouquet  structure

(134)  The  parties  contend  that  the  market  entry  of
potential  suppliers  of  basic  packages  and  sports
programmes  will  be  facilitated  if  subscribers  are
not  forced,  as  a  condition  for  subscribing  to
Premiere’s  premium  film  and  sports  channels,  to
subscribe  first  to  the  Premiere  basic  package.  This
undertaking  may  indeed  make  it  easier  for  an
alternative programme platform to win subscribers
for  a  basic  package  in  competition  with  Premiere.
It  can,  however,  hardly  contribute 
the
emergence  of  such  an  alternative  programme
platform, since this could be generated only on the
basis  of  premium  channels  (anchor  channels).

to 

(133)  It  is  unlikely  that  a  potential  pay-TV  provider
would enter the market on the basis of the offer of
25 %  of  the  pay-TV  rights  from  the  output  deals.
Any  third  party  would  have  to  pay  the  same  price

(135)  The  parties  have  offered  cooperation  with  the
cable operators only in the area of sales. The cable

(c)  Cable  operators

L  53/26

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27.2.1999

thereby 

operators  are  thus  prevented  from  marketing
Premiere  on 
from
their  own  and 
developing  customer  relations  and  unbundling  and
repackaging  programmes.  For  the  cable  operators
to  develop  an  alternative  programme  platform,
other  than  by  cooperating  with  Telekom  given  the
existing  network  structure,  they  would  require  at
least to be able to obtain the individual programme
packages  offered  by  Premiere,  in  particular  the
premium  film  and  sports  channels,  bundle  them
with  third-party  channels  and  offer  them  to  their
cable  customers.

(d) Pay-TV  and  free  TV  rights

(136)  The wording of the undertaking allows Premiere to
purchase  the  required  rights  not  just  from  other
suppliers  but  also  from  Kirch  and  CLT-UFA.
However, CLT-UFA and Kirch would then be able
to  purchase  pay-TV  and  free  TV  rights  combined.
This  undertaking  is  therefore  meaningless.

and 

Kirch 

licensing 

Telekom. 

level  of  licence  fees,  may  indeed  go  some  way  to
ensuring  that  third  parties  are  not  subject  to
discrimination  where 
is  concerned.
However, this undertaking again does not alter the
fact  that  the  technological  development  for  which
licences  are  granted  will  be  controlled  by
Bertelsmann, 
The
undertakings  that  BetaResearch  will  disclose  the
API  interface  of  the  d-box  network  by  the  end  of
1998, that, in the event of licensing disputes, it will
defer  to  an  arbitration  tribunal,  and  that  it  will
supplement  the  native  API  with  the  interface  to  be
standardised  by  the  DVB  as  soon  as  the  latter  is
available  are  essentially  confirmation  of  intentions
which 
in  any  case  stated.
Furthermore,  although  BetaResearch’s  undertaking
that  it  will  grant  manufacturing  licences  to  any
interested  decoder  manufacturer  on  standard
conditions  and  defer  to  an  arbitration  body  in  the
event of disputes concerning these conditions might
well contribute to creating competition with regard
to  the  manufacture  of  decoders,  it  likewise  does
not  alter  the  fact  that  Bertelsmann  and  Kirch,  as
dominant  pay-TV  suppliers,  and  Telekom,  as
dominant  cable  operator,  control  the  development
of  decoder  technology.

the  parties  had 

(e)  BetaResearch

(f)  BetaDigital

(137)  Telekom’s offer of setting up a technical council of
experts  is  simply  a  question  of  opening  up  the
existing  council  of  experts  with  ARD  and  ZDF  to
third  parties.  It  should  be  noted  that  under  the
agreement  with  ARD  and  ZDF,  this  council  of
issues  relating  to
experts 
technological  development  but  cannot  require
operators  to  comply  with  its  recommendations.

is  able  to  discuss 

(138)  The  possibility  for  third  parties  to  participate  in
BetaResearch,  as  proposed  by  the  parties,  might
in  respect  of
give  rise  to  some  transparency 
technological
future 
concerning 
decisions 
development.  However,  since  this  participation  is
to be limited to 25 % and the intermediate holding
company  is  not  to  be  granted  any  veto  rights,
Bertelsmann  and  Kirch,  as  the  dominant  pay-TV
suppliers,  and  Telekom,  as  the  dominant  cable
operator,  retain  joint  control  of  BetaResearch  and,
consequently,  of  technological  development.

(139)  The  introduction  of  a  compulsory  conditional
access  licence  and  an  arbitration  body  for  settling
disputes  concerning  conditions,  in  particular  the

(140)  Although  BetaDigital  will,  in  the  event  of  disputes
concerning  terms,  also  defer  to  an  arbitration
tribunal  with  final  say,  this  undertaking  does  not
in any way alter the fact that BetaDigital will have
a  long-term  monopoly  on  the  market  for  technical
satellite pay-TV services.

(g)  Overall assessment

(141)  On  the  basis  of  the  proposed  undertakings,  the
indeed  guarantee  a  degree  of
parties  do 
technological  transparency  and  access  to  d-box
technology. However, the parties are not willing to
surrender their absolute control of this technology,
and in particular of its further development. As far
as pay-TV is concerned, the proposed undertakings
will  not  give  any  alternative  programme  and
marketing platform a realistic chance. Premiere will
continue  to  be  able  to  dictate  the  terms  on  which
third  parties  may  enter  the  market.  At  the  same
time,  the  undertakings  are  rendered  even  more
meaningless  by  the  fact  that,  without  a  second
programme  platform,  no  alternative  technological
platform  can  be  expected  to  be  developed.

27.2.1999

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L  53/27

3.  Further  undertakings

(142)  On 13 and 19 May 1998, the parties supplemented
and  widened  the  proposals  they  had  made,  as
follows.

(a)  Cable  operators

(143)  In  addition  to  the  cooperation  on  sales  already
offered,  Premiere  will,  on  certain  conditions,  also
allow  cable  operators  to  market  its  programmes
and  thus  develop  their  own  customer  relations.
Free  TV,  pay-TV  and  pay-per-view  programme
suppliers are in principle excluded from marketing.
Marketing  will  not  be  exclusive,  i. e.  Premiere  and
the  cable  operators  will  market  Premiere 
in
competition  with  each  other.  Generally  speaking,
each  party  will  pursue  customer  relations  with
those  subscribers  acquired  by  it.  The  data  of
customers  acquired  by  the  cable  operators  would,
however,  have  to  be  made  available  to  Premiere’s
subscriber  management  system  so  that  Premiere
could  provide  the  customers  in  question  with
additional  services  (such  as  pay-per-view)  and
general customer information. Cable operators will
not  be  allowed  to  market  Premiere’s  pay-per-view
services.

their  own 

together  with 

(144)  The  cable  operators  will  have  to  offer  the  same
combination  of  packages  as  Premiere.  They  will
not  be  allowed  to  unbundle  programmes  within
individual  packages  or  Premiere’s  package
structure. However, cable operators will be able to
offer 
the
services 
programme  package  and  market  the  packages  and
individual  programmes  of  third-party  suppliers.
Because  Premiere  no  longer  insists  on  linking  its
basic package with its premium package (see recital
125),  the  cable  operators’  customers  will  have  the
opportunity  of  subscribing  to  a  basic  package
offered  by 
the
Premiere 
combination.  However,
subscribing  to  such  a  basic  package  must  not  be
made  a  condition  for  subscribing  to  Premiere
programmes.  The  price  payable  by  cable  operators
for  the  Premiere  package  will  be  calculated  on  the
basis of the transfer price of Premiere on the cable
market  minus  the  costs  which  Premiere  will  have
saved  on  marketing.  Cable  operators  will,  like
Premiere,  have  to  offer  the  d-box  decoder  for
rental  and,  while  supplies 
last,  make  use  of
decoders  from  the  Nokia  quota  (1  million  units).

the  cable  operator  alongside 
package 

Premiere  programmes,  i. e.  they  must  agree  to
market  the  Premiere  package  in  toto.  Otherwise
Premiere  will  not  be  obliged 
its
programmes  available  for  marketing.  In  the  event
of  capacity  shortages,  Premiere  and  the  cable
operators  will  either  be  bound  by  the  instructions
of  the  Land  Media  Institutes  (Landesmedienanstal-
ten)  or  reach  agreement  on  another  objective
capacity-allocation procedure.

to  make 

(b) Cable  networks

(146)  Telekom  also  stated  on  20  May  1998  that  it  will
keep,  until  31  December  1999  at  the  latest,  two
digital channels on the cable TV band open for use
by  a  potential  third-party  programme  supplier.
Telekom  is  also  willing,  together  with  level-4
operators,  to  expand  cable  capacities  on  band  IV,
but  only  where  refinancing  is  possible  for  cable
operators  (levels  3  and  4).

(c)  BetaResearch

(147)  As  far  as  the  offer  to  allow  third-party  firms  to
acquire  a  holding 
in  BetaResearch  via  an
intermediate holding company (see recital 128), all
shareholders, i. e. Bertelsmann, Kirch, Telekom and
the  holding  company,  will  have  the  same  rights.
For  the  purposes  of  obtaining  a  majority  in  the
event  of  voting,  the  statutory  rules  will  apply  (no
specific  quorum).  The  special  rights  previously
granted  to 
longer
apply.

individual  shareholders  no 

4.  Assessment

(a)  Cable  operators

(148)  The  new  undertakings  proposed  by  the  parties  do
not create the conditions for the development of an
alternative programme and marketing platform for
cable  operations.  The  parties  themselves  point  out
in  their  accompanying  letter  that  ‘the  partners  for
the  establishment  of  these  marketing  forms  on  an
economically plausible basis do not at present exist
on  the  German  market  or  at  least  have  not  in  the
past  shown  any  readiness  to  carry  out  the
necessary investments to develop the corresponding
infrastructures’.  With  the  cable-network  structure
in  its  present  form,  it  is  indeed  not  possible  for
private cable operators to set up a programme and
marketing  platform  of  their  own.

(145)  Cable  operators  must  not  abuse  the  freedom  they
have been offered in order to limit their marketing
in  capacity  terms  with  regard  to
operations 

(149)  As  indicated  in  recital  63,  private  cable  operators
are predominantly active at level 4 (home link-ups,
(cable
cable 

level-3  networks 

islands).  The 

L  53/28

EN

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27.2.1999

head-end  to  the  boundary  of  a  plot  of  land)  are
almost  entirely  owned  by  Telekom.  Private
operators  are 
thus  generally  dependent  on
obtaining  upstream  level-3  services  from  Telekom.
Without  operating  at  level  3,  however,  it  is  not
possible  for  private  cable  operators  to  create  an
alternative  programme  platform.  Given 
the
fragmentation of the German cable-TV market and
Telekom’s position as virtually the sole operator of
level-3  networks,  the  private  cable  operators  are
not  at  present  able 
to  offer  an  alternative
programme  platform  which  would  compete  with
Premiere.

levels  3  and  4  would,  in  all  probability,  only  be
possible  after  a  restructuring  and  privatisation  of
Telekom’s  cable  networks,  whereby  they  would  be
operated  by  regional  companies  in  which  private
cable  operators  would  have  a  stake.  Telekom  has
not,  however,  made  any  binding  statements  about
when and how such restructuring might take place.
It will therefore probably not occur until such time
as  Premiere  is  so  ahead  of  the  field  in  terms  of  its
it  will  be  difficult  for
subscriber  base  that 
alternative  platforms  to  gain  a  foothold.

(151)  In  addition,  cable  operators  will  not,  on  the  basis
of  the  proposed  undertakings,  be  in  a  position  to
offer pay-TV programmes on the same competitive
terms as Premiere. This is because they will not be
allowed to supply programmes for pay-TV and, for
example,  offer  regional  programmes  produced  by
themselves.  Rather,  they  will  be  limited,  in  their
ability  to  offer  additional  services,  to  marketing
third-party  channels.  Moreover,  they  will  not  be
allowed to market Premiere’s pay-per-view services
nor  offer  any  pay-per-view  services  of  their  own.
lack  of  exclusivity  on
However,  given 
pay-per-view 
to  offer
them 
pay-per-view  services  would  be  the  easiest  way  of
giving  them  access  to  the  pay-TV  market.  Cable
operators  must  also  offer  the  Premiere  package  in
the  same  combination  as  Premiere  itself.  This
means  that  they  will  be  completely  dependent  on
Premiere  as  far  as  the  essential  parameter  of
bundling  is  concerned.

rights,  allowing 

the 

(152)  Cable  operators  are  further  required  to  make  their
customer  data  available  to  Premiere  without  any
corresponding  obligations  on  Premiere’s  part.
However,  the  supply  of  such  data  would  be  an
entirely  uncommon  practice  in  this  sector,  and
would  provide  Premiere  with  a  considerable
competitive  advantage.  Pricing  on  the  basis  of  the
Premiere  transfer  price  minus  the  costs  saved  on
marketing gives rise to the risk that cable operators
will  not  be  able  to  market  Premiere  programmes
economically.  It  remains  entirely  unclear  who  will
determine  these  cost  savings  and  what  criteria  will
be  used  in  so  doing.

(b) Cable  networks

(153)  The reservation of two digital channels in the cable
TV  band 
third-party
for  use  by  potential 
programme suppliers might theoretically help make
it  possible  for  competing  programmes  to  be
supplied  given  the  additional  capacity  thus  made
available, but it is not in itself likely to open up an
opportunity  for  the  emergence  of  an  alternative
programme  platform  for  cable.  This  is  true  solely

level-3  and 

(150)  In  the  course  of  this  proceeding,  Telekom  has  not
shown  any  willingness  to  cooperate  with  private
cable  operators  in  creating  an  alternative  cable
platform  or  at  least  allow  them  access  to  level-3
services.  It  is  true  that,  when  asked  on  22  May
1998  how  the  separation  between  levels  3  and  4
could  be  overcome,  Telekom  stated  that,  for  the
purposes of making available its services relating to
the  digital  cable  platform  and  digital  marketing
platform,  contracts  would  be  concluded  between
interested  operators  (programme
Telekom  and 
suppliers, level-3 operators). If level-4 operators so
wished, the technical and operational separation of
levels  3  and  4  could  also  be  overcome  by
level-4
combining  the  services  of 
operators.  However,  these  statements  are  so  vague
and  general  that  they  do  not  provide  adequate
reason to expect that the separation between levels
3  and  4  can  be  overcome  for  the  purposes  of
a
enabling 
programme  and  marketing  platform.  In  particular,
as  far  as  combining  the  services  of  level-3  and
level-4  operators  is  concerned,  it  is  not  explained
which  services  could  be  provided  by  Telekom  and
which  by  the  level-4  operators,  nor  how  indeed
they could be combined in technical and economic
terms.  It  is  still  completely  unclear  whether  level-4
operators will have their own access to level 3 and
whether,  in  particular,  they  could  also  operate
conditional  access  to  level  3  and  whether,  in
particular,  they  could  also  operate  conditional
access  and  how  this  could  be  made  technically
possible.  On  the  basis  of  Telekom’s  statements,  it
must  therefore  continue  to  be  assumed  that
Telekom  ultimately  wants  to  be  the  sole  provider
of  the  necessary  technical  services,  and  that,
consequently,  level-4  operators  will  be  dependent
of
on 

level-4  operators 

it.  Overcoming 

separation 

establish 

the 

to 

27.2.1999

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L  53/29

by dint of the fact that the reservation is limited in
time.  It  would  be  extremely  difficult  in  only  one
and  a  half  years 
to  set  up  an  alternative
programme  platform.  Since,  moreover,  private
cable  operators  are  not,  if  they  wish  to  market
Premiere,  allowed  to  supply  pay-TV  themselves,
they  will  be  restricted  to  offering  third-party
channels  and  thus  be  considerably  handicapped  in
their ability to set up a programme platform which
could  use  the  two  channels.  On  the  other  side  of
the  coin,  a  programme  supplier  who  wished  to  set
up a programme platform on the basis of the 25 %
of  pay-TV  rights  could  not  make  use  of  those
rights  until  2000.  Moreover,  in  order  to  use  the
two channels, a programme supplier would have to
sign  a  contract  for  10  years  even  though  he  has
access  to  the  25 %  of  pay-TV  rights  from  the
output  deals,  as  offered  by  the  parties,  only  until
the  end  of  2002.  The  creation,  as  proposed  by
Telekom,  of  additional  capacities  by  extending
band  IV  has  not  been  described  in  any  more
concrete  terms  and  should  therefore  be  considered
merely  a  general  statement  of  intent.

(c)  BetaResearch

(154)  The  undertaking 

all 

that 

shareholders 

it  should  be  borne 

intermediate  holding 

in
BetaResearch,  including  the  intermediate  holding
company for third parties, will be granted the same
rights  might  in  principle  solve  the  problem  of  the
control  of  technology  by  programme  suppliers.  If
CLT-UFA  and  Kirch  no  longer  have  the  right  of
veto  and  all  shareholders  have  the  same  rights,
shifting  majorities  are,  from  a  formal  point  of
view,  possible  within  the  bodies  of  the  company.
in  mind  that
However, 
BetaResearch  will  only  have  four  shareholders
since third parties will be granted a share solely via
an 
company.  Majority
decision  could  therefore  be  taken  only  with  the
approval of at least three of the four shareholders.
This  means  that  CLT-UFA  and  Kirch,  acting
together,  would  always  be  able  to  block  decisions
and thus continue to ensure that their interests win
the  day  by  preventing  any  decision  which  goes
against  those  interests  from  being  adopted.  The
intermediate  holding  company  would,  by  contrast,
only  be  able  to  enforce 
interest  against
CLT-UFA  and  Kirch  in  conjunction  with  Telekom
if both of them voted against CLT-UFA and Kirch
and  thereby  prevented  a  majority  from  being
reached.  It  is  obvious,  however,  that  Telekom,
given  that  it  will  supply  technical  services  for
pay-TV  on  the  basis  of  the  d-box  technology,  is

its 

more  likely  to  have  interests  which  converge  with
those  of  CLT-UFA  and  Kirch  than  with  those  of
the  intermediate  holding  company  for  third-party
firms.  This  means 
for
that 
CLT-UFA  and  Kirch,  as  dominant  pay-TV
suppliers,  and  Telekom,  as  dominant  cable
operator,  of  jointly  controlling  the  technology  and
its  further  development  may  be  limited  from  a
formal point of view but might nevertheless remain
in practice.

the  possibilities 

(d) Overall assessment

to  solve 

(155)  It  follows  from  the  above  that  the  proposed
undertakings,  even  in  their  expanded  version,  are
inadequate 
the  existing  competition
problems. They are unlikely, in particular as far as
the  pay-TV  domain  is  concerned,  to  give  private
operators  a  realistic  chance  of  establishing  an
alternative  programme  and  marketing  platform.
Premiere  will  thus  continue  to  be  in  a  position  to
dictate  the  conditions  for  market  entry  by  third
parties. It is true that opening up the possibility for
third parties to take a holding in BetaResearch and
the  simultaneous  abandonment  of  the  veto  and
special  rights  of  the  existing  shareholders  is  an
important  concession  since 
it  will  enable  the
structurally  safeguarded  control  of  the  technology
and  its  further  development  to  be  lifted.  However,
since  no  alternative  technical  platform  will  emerge
without  the  chance  of  an  alternative  programme
platform,  the  undertaking  regarding  BetaResearch
is  inadequate,  even  in  connection  with  the  further
undertakings  proposed  by  the  parties  concerning
the  CA  licence,  the  API  and  the  manufacturing
licence,  to  prevent  Premiere  and  BetaDigital  from,
in  the  long  term,  dominating  the  market.

VIII.  CONCLUSION

(156)  For  the  above  reasons  it  is  considered  that  the
proposed concentration would create or strengthen
a  dominant  position  as  a  result  of  which  effective
competition  would  be  impeded  in  a  substantial
part  of  the  Community.  It  must  consequently  be
declared  incompatible  with  the  common  market
under  Article  8(3)  of  the  Merger  Regulation,

HAS  ADOPTED  THIS  DECISION:

Article  1

The  concentration  notified  to  the  Commission,  which
would take the form of the acquisition of joint control by

L  53/30

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Official  Journal  of  the  European  Communities

27.2.1999

CLT-UFA SA and Taurus Beteiligungs-GmbH & Co. KG
of  Premiere  Medien  GmbH  &  Co.  KG,  BetaDigital
für  digitale  Fernsehdienste  mbH  and
Gesellschaft 
BetaResearch  Gesellschaft 
und
Vermarktung  digtaler  Infrastrukturen  mbH,  is  hereby
declared  incompatible  with  the  common  market  and  the
functioning  of  the  EEA  Agreement.

für  Entwicklung 

CLT-UFA  SA
Boulevard  Pierre  Frieden  45
L-2850  Luxembourg

Taurus  Beteiligungs-GmbH  &  Co.  KG  (KirchGruppe)
Robert-Bürkle-Strasse  2
D-85737  Ismaning.

Article  2

This  Decision  is  addressed  to:

Done  at  Brussels,  27  May  1998.

For  the  Commission

Karel  VAN  MIERT

Member  of  the  Commission