on Continental friends and foes

Wily BSkyB may be in trouble over rugby, having been blamed by some for threatening the very existence of the Five Nations Cup through its rank-breaking deal with England. It may still run into regulatory problems in the UK, depending on what the Office of Fair Trading says in its long-awaited report on pay-TV. But its position on the Continent looks firm enough to warrant smug smiles at Sky's Isleworth headquarters.

Consider that just two weeks ago, BSkyB's grand alliance for the launch of digital TV in Europe lay in tatters, its relations with the German giant Bertelsmann strained to the point of ugliness and its share price fluctuating.

Now, BSkyB, the UK's dominant pay-TV company, is back in the driver's seat, with a freshly minted German digital deal in its pocket and a brand new partner in the form of Leo Kirch, the secretive Bavarian media mogul. The two plan a high-stakes all-digital service starting at the end of the month, promising 17 new channels and holding out the prospect of as many as 200 by next year.

The Kirch-Sky link was a classic manoeuvre by Rupert Murdoch, who owns 40 per cent of BSkyB, and his lieutenant Sam Chisholm. When it became clear to them that Bertelsmann's Michael Dornemann was dragging his feet on the earlier digital alliance, and that he was hell-bent on angering Canal Plus, its erstwhile "strategic partner", by backing the French pay- TV broadcaster's rival, CLT, then Murdoch and Chisholm merely marched off to the competition.

Kirch and Bertelsmann have long been jockeying for advantage in Germany, a potential goldmine for pay-TV given how under-developed the market is. It was also unclear which way Murdoch would lean - toward the well- heeled Bertelsmann, which has already developed a functioning decoder for set-top boxes, or Kirch, one of the world's leading rights holders, with 50,000 hours of television and 15,000 movies sewn up.

Not surprisingly, BSkyB today says that Kirch is by far the better partner (how fickle media barons are!). Together, the two companies have the satellite transponders, programming and money to launch a digital service.

But the game is not quite over, for Bertelsmann is already vowing revenge of sorts. Insiders there insist that the German company has not abandoned the pay-TV market, and is prepared to push ahead, with or without Canal Plus (which is still on the sidelines), with its own digital satellite service. Sources at Bertelsmann concede that two digital platforms would be one too many in Germany, and would probably mean a rerun of the BSB- Sky debacle of the late Eighties, when the two competitors freely bled their way to a messy merger. But that is the threat to Sky. "We may not make any money," Bertelsmann seems to be saying, "but we will ensure that you don't either."

All this is posturing, of course. Nobody sets out to lose money, and in view of the fact that both sides know they can't win unless there is co-operation, the only question is: on whose terms?

One outcome could be a four-way link grouping Sky, Kirch, Bertelsmann and Canal Plus. For that to happen, the chilly relations between Sky and Bertelsmann would have to warm up considerably. The European Commission, moreover, might have something to say about a carve-up among all the big media players of a system capable of rolling out across the continent, to Italy, Spain, France and beyond.

More likely, perhaps, is for Canal Plus to join Sky and Kirch, leaving Bertelsmann to concentrate on its powerful position in terrestrial television.

Without a doubt, there will be digital TV in Germany by the end of the summer. And without a doubt, there will be but one digital platform in Germany - eventually. There may have to be a bloodbath first, as Bertelsmann tries to queer the pitch for Messrs Kirch and Murdoch. But in the end, there is no room for two competing systems.

This is not an argument in favour of Kirch's decoder over Bertelsmann's planned system. Nor has it anything to do with who would be the better marketer of pay-TV services. Nor, of course, does it mean that no one else should be allowed access to the digital platform. The Commission is bound to insist on "fair and open access" for broadcasters.

But the battle now is about the delivery system. The winners are likely to be those who get their product to market first rather than those with superior technology. That means Kirch and Murdoch are in pole position, and the others will probably now have to fall in line.

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