News

German Digital Alliance Rising from Ashes?

4/19/1998 8:00 PM Eastern

Frankfurt, Germany -- It looks less likely that the German
digital alliance between Bertelsmann AG, Deutsche Telekom and The Kirch Group will be
approved by European authorities, and more likely that the abandoned
Multimedia-Betreiber-Gesellschaft (MMBG) consortium may resurface.

MMBG was formed to provide digital services in Germany, but
it was put aside after Bertelsmann and Kirch ended their ongoing war. However, MMBG still
formally exists and, above all, it still has all of the necessary licenses, including the
European Commission's consent. Telekom and Bertelsmann are still officially members,
as are broadcasters ARD and ZDF. Kirch was a member of MMBG, but it exited the group.

The possible resurrection of MMBG is one of the leading
scenarios being discussed as the German market awaits the EC's decision on the German
alliance, which is due between May 27 and June 3.

A Kirch official acknowledged that the company isn't
optimistic about getting a favorable ruling from the head of the EC's competition
division, who has spoken out against the German venture. "We can't expect
anything from Karel van Miert," the source said.

At the recent MIP-TV program market in Cannes, France,
speculation was building that the alliance would be shot down, and potential foreign
partners were preparing themselves for another shift in the German-alliance picture.
"Everybody is working on his scenarios to be ready for whatever option
possible," a U.S. studio source said. "About six months ago, I was absolutely
certain about what would happen. Now, I have no idea."

As signs that the EC will reject the alliance have grown,
so, too, have signs that Bertelsmann is looking for a graceful and inexpensive way to get
out. If the EC rejects the deal, Bertelsmann can exit the alliance without having to pay a
penalty to Kirch.

Designated Bertelsmann chairman Thomas Middelhoff is said
to believe more in the potential of Internet than of digital TV. Also, since the
Kirch/Bertelsmann alliance was first proposed, Bertelsmann has been developing a stronger
alliance with France's Compagnie Generale des Eaux, parent of Canal Plus.

Telekom also seems prepared to turn away from the digital
alliance. It appears that the company has swung back from supporting Kirch's d-box
decoder technology to again supporting the Seca set-top-box technology, jointly owned by
Bertelsmann and Canal Plus and supported by MMBG.

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