Kabel Deutschland, Germany's largest cable-TV operator, has intensified the battle between MSOs and broadcasters in the country over carriage rights by dropping regional channels operated by the public networks ARD and ZDF.
This is in direct retaliation for the recent move by ARD and ZDF to stop paying around $35 million (€27 million) annually in carriage fees to Kabel Deutschland. The cable giant has been locked in legal battle with the country's public broadcasters since mid 2012, when ARD, ZDF and Franco-German broadcaster ARTE cancelled carriage contracts with Germany's three major cable operators.
The public networks argue that German law requires cable companies to carry their channels anyway. Here, the situation is almost the opposite of that in the U.S., where cable operators pay carriage fees to the leading networks for the right to carry their channels on the basis that this increases their stickiness — which can amount to almost $5 per month per subscriber in some cases, as with ESPN. But in some cases, no money changes hands, with the channel relying just on advertising for revenue while a few less popular channels actually pay the cable-TV operator. This is the case in Germany.
Until Kable Deutschland’s retaliatory move, all regional public channels were available nationwide. Kabel Deutschland is upping the ante further by reducing the bit rate for both the digital standard definition and HD streams of ARD and ZDF channels.
The dispute began April 2012 when ARD and ZDF launched 10 new HD channels, but refused to pay extra carriage fees to cable operators to carry them. Given that these HD channels would actually consume more capacity than their SD counterparts, this refusal to pay more riled the cable operators. Kabel Deutschland has been most bullish because it is on the crest of a wave, coming into the dispute on the back of strong subscriber and revenue growth at a time when most MSOs around the worlds have been stagnating, or, even as in the U.S., losing customers through churn to satellite and IPTV operators, or to free-to-air services often topped up by OTT offerings. Kabel Deutschland increased its pay-TV subscriber base by 31.7 percent over the year ending Sept. 30, 2012, when it had 1.863 million pay-TV customers.
The most likely outcome of Kabel Deutschland’s tough stance will be a compromise, which some analysts believe could be reached in the next few weeks. But, Kabel stands to gain either way since the regional channels are fairly peripheral to its programming, and the bandwidth freed up by dropping them can be sold to other broadcasters. Broadcasters would be attracted by the fast-growing subscriber base and be prepared to pay carriage fees in the hope of gaining advertising revenue. These fees would at least partially offset Kabel Deutschland’s loss from ARD and ZDF.