At a meeting in Brussels on Friday, EU competition commissioner Karel Van Miert rejected a last-ditch proposal from the two companies to save the merger, paving the way for an outright veto of the deal by Brussels on 27 May.
An EU ban of the proposed alliance would send shock waves through the boardrooms of Europe's other large media companies, such as France's Canal Plus, as it would show Mr Van Miert's determination to thwart any attempts by the giants to pre-empt competition in fast-growth media markets.
According to sources inside the Commission, Bertelsmann, which recently bought the publisher Random House, and Kirch have only one way to avert a humiliating defeat at the hands of Brussels regulators - they can withdraw the alliance proposal entirely, giving the Commission nothing to veto. "Either they withdraw or Van Miert will definitely propose a negative decision," said the Commission source.
On Thursday, Bertelsmann and Kirch sent a last-minute proposal to the Commission in a bid to alleviate the competition concerns. The details were not revealed, but EU officials said it was "too little, too late".
If Mr Van Miert does follow the recommendations of the Commission's draft decision to block the deal outright, he would be going against the wishes of his boss, Commission President Jacques Santer. The Bertelsmann-Kirch venture would have been marketed under the banner of CLT-Ufa, a joint venture between Bertelsmann and CLT, the biggest company in Mr Santer's native Luxembourg. "I have never seen a case so heavily lobbied" said one EU insider. "Santer is panicking a bit."
The Commission says the deal is unacceptable because rivals would effectively be barred from Germany's digital television market as the two companies would control access to the set-top decoder box viewers will need to receive programmes.
Competition officials in Brussels also believe the venture would dominate the most lucrative pay-TV content, as Kirch has worldwide broadcasting rights for World Cup soccer and big Hollywood films.
Canal Plus lobbied the Commission to approve the deal because it fears a veto would set a precedent in regulating the new European television landscape.
Observers say the decision on Bertelsmann is unlikely to affect an upcoming Brussels decision on the joint digital TV venture between British Sky Broadcasting and British Telecom, British Interactive Broadcasting. The Commission is expected to grant conditional approval this month for BIB, an interactive home shopping and banking service due to launch later this year.
BIB, which already has clearance from the UK regulators, is a key part of the plan to launch up to 200 digital satellite channels in the UK in June.
Mr Van Miert has been concerned that BIB would create a dominant player that could prevent competitors entering the market. Brussels has been reported as insisting that BT's local phone network, which provides the link for the interactive services, should be available to rivals at fair prices.Reuse content