EC Eyes Changes in German Merger

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Frankfurt, Germany -- The German digital TV business is
once again in limbo as the European Commission steps up its investigation of the proposed
merger between DF1 and Premiere.

Nothing is expected to move forward on Germany's
digital TV front until May, when the EC is expected to spell out a list of conditions that
must be met before it will approve the merger.

The EC said it decided last month to further investigate
the deal because of its fear 'that after the merger, Premiere will be the only pay TV
programming and marketing platform in Germany.' Up until now, The Kirch Group has
operated DF1, and CLT-Ufa, Bertelsmann AG/Audiofina's TV holding company, has
operated Premiere, in which Kirch also has a stake. The two want to merge their digital
operations.

Most analysts think that the merger will ultimately be
approved, but European antitrust officials are expected to insist on strict, new
conditions. According to German newspapers, they include a proposal that Bertelsmann and
Kirch sell at least 50 percent of their vast rights to sports events. Also, Kirch may not
be allowed to keep all of the rights to the pay TV product that it has secured, namely in
fictional programming.

More serious, the EC could forbid the two companies from
including free TV activities in the pay TV merger. Part of the proposed merger involves
Kirch giving 50 percent of sports channel Deutsches SportFernsehen (DSF) to CLT-Ufa and
including it in the new Premiere holding.

The EC may also try to keep Deutsche Telekom AG from
joining Kirch and CLT-Ufa in BetaResearch, the company that holds the rights to and
develops the software for the conditional-access system of the set-top hardware, the
d-box.

The final conditions that will be stipulated in May will be
the result of the talks under way between the EC, Kirch, CLT-Ufa and parties that
complained against the merger, which include Universal Studios, German public broadcaster
ARD and Bundeskartellamt, the German antitrust office.

Some German media authorities argued against the EC's
conditions being too onerous. Rainer Hochstein, head of the assembly of German media
regulators, ALM, is convinced that prohibiting the merger would leave the power
concentrated with Kirch. 'Suicide because of the fear of death is not an
answer,' he said of that possible scenario.

Some also believe that the new generation of Bertelsmann
managers surrounding the designated chairman, Thomas Middelhof, would not be too upset
about an opportunity to back out of the contracts with Kirch. They considered the
investments in digital TV through DF1 too high. Above all, Belgian banker Albert Fréres,
a partner in CLT-Ufa, is said to not have decided yet whether to fully support the German
project.

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