Playing Monopoly Playing Monopoly/digital Mergers Could Cause Renegotiations At Mip-tv

Renegotiations by the Hollywood studios of multi-million-dollar output deals with some of Europe's mammoth digital program-delivery platforms may take place at MIP-TV, some experts believe. "There's just so much uncertainty out there -- about the state of the platforms, about subscriber levels not reaching targets and about possible merger monopolies -- that some people are worried about many of the huge output deals that were signed in recent years," says a leading industry executive who requested anonymity.

David Davis, a senior analyst with entertainment investment bankers Houlihan, Lokey, Howard & Zukin, believes that renegotiations are already under way and will continue at MIP, "because the best time to go in and renegotiate your deal is before a merger takes place." In the U.K., for instance, "you saw the American studios getting prices that were so high they just made no economic sense. Once a merger takes place there is no bidding up of prices, which [therefore] drift back to an appropriate economic level."

There is concern in Germany, where neither competing platform can be considered a success. The KirchGroup's DF1 has stalled around 40,000 subscribers, and CLT-UFA's newly launched "Premiere Digital" has also had a slow start, pending a decision by the European Union's anti-cartel office in Brussels on whether to let the digital pay-TV platforms merge. There is fear in Germany that a merger would create a monopoly and place the digital domain exclusively under the control of the KirchGroup and CLT-UFA, which would be bad news for Hollywood. "The studios always like it when there are two players in any market," says one studio senior executive, "so they're getting edgy about the entire situation in Germany."

Word from Brussels is that anti-cartel commissioner Karel van Miert is not expected to reject the merger plans outright, but he may insist on a lot of changes in the deal. Program suppliers have recently also grown restive about a possible merger in France between CanalSatellite and Television Par Satellite, a relative newcomer which controls about a third of the market with 385,000 subscribers. The merger has been shelved for the time being after van Miert said he would oppose the plan. Canal Plus has pay-per-view supply deals with Disney, Fox and Universal, among others.

Existing studio output deals are also under threat in Italy, where Canal Plus, which owns a 90% stake in the country's only pay-TV operation, reached a preliminary agreement to jointly operate Telepiu with primary broadcasters RAI, Telecom Italia, Cecchi Gori and Mediaset. The negotiations have stalled, however, on the issue of decoders for the single platform. Nonetheless, Canal Plus' Pierre Lescure is confident that an agreement will be completed by this summer. Mediaset is hell- bent on having a single Italo-French platform. If there are two competing digital platforms in Italy, "costs will soar and plenty of our money will end up aboard," explains Adriano Galliani, its managing director. Telepiu has output deals in place with all the Hollywood majors, and a Disney Italy channel is set to launch its digital platform next fall.

All these maneuverings have American studio chiefs scratching their heads. "You can go crazy trying to guess what will happen," laments Marion Edwards, executive vp, Twentieth Century Fox International Television. Her policy has been to do the best deals possible and then renegotiate if there are mergers like the one that transpired between BskyB and Sky in the U.K. "It would simply not be good business for us to sit back and wait to see what happens with these platforms in the future," she adds. "You take a lot of things into account, like the region's economy and who is most likely to continue in the marketplace, but then you go in and do the best deal you can."

Each situation is different. The digital delivery systems in France have expanded faster than anyone anticipated, because French consumers like diversity and choice. There is talk of the two platforms in Spain -- Canal Satelite Digital and Via Digital -- merging. "These markets are not large enough to support five platforms per territory, but I have found to my surprise that two competitors can co-exist reasonably well in European territories," observes Michael Grindon, president, Columbia TriStar International Television.

As far as Grindon, Edwards and other international chiefs are concerned, the growth of Europe's digital platforms have proven nothing but profitable for Hollywood, but some tough negotiations are clearly looming.

-- Meg Bortin, Nick Vivarelli and Eric Hansen contributed to this report