The new alliance, which leaves Bertelsmann and Canal Plus, Sky's former partners, out in the cold for now, will see Mr Murdoch join forces with the owner of the broadcast rights to 15,000 movies and 50,000 hours of television, with the exclusive rights to the football World Cups in 2002 and 2006.
Sky sources reported yesterday that no money will change hands, and stressed that the Kirch Group will manage the digital platform in Germany.
However, BSkyB will jointly finance the launch, scheduled for 28 July, and will provide transponder space on an Astra satellite and marketing and programming expertise.
The deal will see BSkyB take up to 49 per cent of DF1, Kirch's digital platform in Germany. Sky is also angling for a 25 per cent stake in DSF, Kirch's sports channel.
Sam Chisholm, chief executive of BSkyB, said, "This is a major step forward in the new television world."
It is understood that the negotiations leading to yesterday's announcement were started within the past month, and that both sides were eager to reach a deal.
The new alliance could be a direct threat to Bertelsmann, the German media giant, which late last week finalised its controversial deal with CLT to merge the two companies' television assets.
That arrangement helped scupper the grand pan-European alliance grouping Sky, Havas, Bertelsmann and Canal Plus, the French pay-TV giant, earlier this year.
Canal Plus had been upset at CLT's plans to compete in the digital TV market in France, and questioned why Bertelsmann, an alliance partner, would back the rival company. Mr Murdoch, for his part, was concerned about what Sky insiders have called "foot-dragging" on the part of Bertelsmann in the preparation of the four-way alliance.
BSkyB confirmed yesterday that it had "withdrawn from the proposed agreement" with Canal Plus, Bertelsmann, and Havas, also a French media company.
However, the company said that both Kirch and BSkyB "are prepared to admit other participants which bring strategic value to the project" of a digital platform in Germany.
It is understood that the German digital joint venture, which will feature 17 channels of mostly German-language programming, will have no effect on Sky's own digital plans in the UK. BSkyB has promised to launch a digital satellite service with up to 200 channels by the end of next year.
Gottfried Zmeck, chief executive of DF1, said: "With BSkyB, we have a partner who will enhance the development of our digital platform in Germany with its experience as Europe's most successful pay-television operator."
Media analysts said yesterday that the Kirch digital network had an advantage over other potential competitors because of Mr Kirch's control of programme rights.
"He has an ironclad grip on the programming rights in Germany," one senior industry source said.
With partners ISL, the marketing company, Mr Kirch last week promised $2.2bn for the rights to the World Cup events in 2002 and 2006.
It is understood that BSkyB intends to negotiate for UK rights to some matches, and is expected to have a better chance of securing a deal following the announcement of the German joint venture. Sky sources indicated that the alliance with Kirch could be expanded in other parts of Europe.
Kirch has 43 per cent of commercial channel SAT1, 25 per cent of Premier, the analogue pay-TV service, and 10 per cent of Mediaset, Silvio Berlusconi's media conglomerate.
Bertelsmann, which has a long-term strategic alliance with Canal Plus, may yet join the Murdoch-Kirch platform, analysts said last night. They questioned whether there was room for two digital services in Germany, where just 3 per cent of homes now subscribes to pay-TV, compared to about 25 per cent of British homes.
Bertelsmann has said it would launch its own digital platform, using a competing technology, by the end of the year. However, the deal with CLT, which brings together mainstream TV operations in Germany, the Netherlands, Belgium, Luxembourg, Britain and France, may end up focusing on terrestrial TV. The battle for the German market is the first stage in a wider war to dominate the European pay-TV sector. It is estimated as many as 33 million homes could subscribe by the year 2004.
BSkyB has been preparing for its UK digital launch for several months, but has reserved the right to delay the start depending on the local market. It has so far dominated the analogue pay-TV business, and is eager to migrate its dominance to the digital age.Reuse content