Businessmodels for German Cable Networks

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1 Institut für Rundfunktechnik Businessmodels for German Cable Networks - commercial, technical and competition aspects of vertical integration - ITS workshop Klaus Merkel IRT / Informations- und Datendienste IRT Businessmodels for German Cable Networks / Folie: 1

2 11 years ago Feb / Digital Cable: First Business Models public First Discussions Süddeutsche Zeitung IRT Businessmodels for German Cable Networks / Folie: 2

3 MSG (1994): The "vertical" Model Programme Service Provider (Kirch, Bertelsmann) Network Operator (Deutsche Telekom) Decoder Manufacturer (Aufträge von der MSG) MSG MSG MSG End Customer IRT Businessmodels for German Cable Networks / Folie: 3

4 Questions in the Vertical Market Model... Programme Service Provider (Kirch, Bertelsmann) Progr. B MSG Network Operator (Deutsche Telekom)? MSG? Decoder Manufacturer (Aufträge von der MSG) MSG C - Box End Customer IRT Businessmodels for German Cable Networks / Folie: 4

5 Borders by competition law (1994) MSG decision > incompatible with the open market "If,... MSG achieves... a monopoly position as an operator of a digital infrastructure for pay-tv, all pay-tv suppliers that may enter the pay-tv market following digitalization will be forced to take the services underlying pay-tv from an enterprise controlled by the pay-tv suppliers that are already in a leading position. Future pay-tv competitors of Bertelsmann/Kirch would have the choice of either accepting MSG' conditions or staying out of the market.... competitors of Bertelsmann/Kirch or of MSG would not have free and uncontrolled access to the installed decoder base... The control of user guidance enables the operator to place programmes of competing pay-tv suppliers on positions in the programme menu which make them less attractive..." IRT Businessmodels for German Cable Networks / Folie: 5

6 Development of digital TV platforms in Germany MSG Kirch Bert. Telekom MMBG Bertelsm. Telekom ARD ZDF FreeTV ARD,RTL,Manufac. Telekom plan: indep. platform d-box-platform Betacrypt F.U.N ARD, Manufact. d-box-platform Betacrypt (Liberty) Geeignet f.prem. Nagra KabelDigital Nagra FreeTV Premiere Cable (NE3) DF1 IRT Businessmodels for German Cable Networks / Folie: 6

7 Borders by competition law (2004) KDG - ish/easy/kabelbw (Bundeskartellamt) -> withdrawal "KDG betreibt... eine eigene sogenannte digitale Plattform... Die Set-Top-Box unterliegt weitreichenden KDG-Vorgaben hinsichtlich des verwendeten Verschlüsselungssystems, weiterer Software und anderer Eigenschaften. Während derzeit nur Pay-TV-Programme verschlüsselt werden, beabsichtigt KDG... auch bei Free-TV-Programmen eine Grundverschlüsselung. Wenn der Empfang von Free-TV nur noch über die von KDG zertifizierten Boxen möglich ist, wäre der Endkunde gezwungen, in jedem Fall eine solche Box zu erwerben.... Die Kontrolle über die Set-Top-Boxen kann von der KDG zugunsten des eigenen Pay-TV-Bouquets eingesetzt werden.... Der weitgehend unkontrollierte Verhaltensspielraum... würde durch die beabsichtigte Fusion mit den drei anderen Kabelnetzgesellschaften weiter verstärkt.... Daneben könnte KDG ihre aktuelle Kontrollmöglichkeit über die digitale Plattform auf die übrigen Regionen... übertragen." IRT Businessmodels for German Cable Networks / Folie: 7

8 Overall development of digital TV in Germany DVB-T digitisation rate (2004): Cable ~ 11% Satellite ~ 25% 2004 IRT Businessmodels for German Cable Networks / Folie: 8

9 Vertical Integration and technological Aspects Strong commercial interest in certain technical platform components -> generally, a certain "Quality of Service" shall be ensured -> technological and commercial arguments for vertical Integration typically relevant Components: CA-System for PayTV and basic encryption Navigation Copy protection Youth protection API (standard available since ~ 2002) IRT Businessmodels for German Cable Networks / Folie: 9

10 Motivation for vertical Integration technical Aspects: -> missing Standards for important Components (CA, DRM, Youth protection, Navigation,...) -> Standards leave Options open ("Interoperability" issues related to e.g. graphics or memory management) commercial Aspects: -> missing definitions of minimum decoder functions available -> better planning options and faster Roll-Out ("chicken and egg" problem) -> option to invest into decoders and better control the market IRT Businessmodels for German Cable Networks / Folie: 10

11 Alternatives to vertical Integration technically: -> continue to improve Standardisation (API, DRM incl. youth protection, new coding technologies,...) commercially / technically: -> aim at marketwide agreements regarding - required basic features + optional features - technical details regarding interoperability issues - market launch of services and decoders IRT Businessmodels for German Cable Networks / Folie: 11

12 Horizontal Market Structure defined and open Interfaces! Programme Service Provider Netzwork Operator Decoder Manufacturer End Customer IRT Businessmodels for German Cable Networks / Folie: 12

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