The breakdown of the joint venture is BSkyB's second failed attempt to enter Germany, Europe's biggest media market.
Separately, BSkyB has not explained why it has delayed awarding contracts for the supply of digital TV decoders for its UK digital pay-TV service, planned to begin by the end of the year.
BSkyB's shares fell as much as 4.2 per cent in early trading before recovering to close at 616.5p, down 7p. The company, which is 40 per cent owned by Rupert Murdoch's News Corporation, said the companies ended talks by mutual agreement "because of a failure to agree on a number of fundamental issues." It did not disclose further details.
The aborted venture with Kirch casts a shadow over BSkyB's attempts to move into digital satellite TV in Europe after it failed earlier to agree terms with Kirch's rival Bertelsmann.
There has been a year-long scramble among TV broadcasters in Europe to seize control of a market made possible by digital TV technology that promises many more channels and bigger revenues.
BSkyB wanted access to the 1.5 million subscribers to Premiere, a German pay-TV movie channel owned by Bertelsmann, Kirch and Canal Plus of France. It planned to buy shares from Bertelsmann and Canal Plus, which each own 37.5 per cent. In return, Kirch said it would provide the network for Bertelsmann's Club RTL, a package of digital TV programming to begin in the autumn.