All eyes will be focused on Germany in the coming weeks as the World Cup gets underway, ushering in advanced high-definition (HD) and Internet Protocol (IP) TV technology for broadcasters. In an effort to capitalize on this event, German satellite pay-TV operator Premiere has struck a deal with Deutsche Telekom to screen Bundesliga soccer via IPTV.

Premiere recently lost the broadcast rights for the league to Arena, the consortium of Germany’s cable operators, and as a result. was facing strong customer losses without the broadcasting of the top domestic soccer showing. Losing the football rights was a disaster for Premiere, as like most satellite platforms, access to soccer has been a key driver to subscriber growth. The operator, which has around 3.5 million subscribers in Germany, has since embarked on negotiations to try and limit the damage.

The deal with DT was a vital one for Premiere, and one that makes sense for DT, which is not really a broadcaster, an analyst said.

Sarah Simon, a media equity analyst at Morgan Stanley, said in a research note that the main potential behind the deal was the impact on churn. “The more important issue, though, is that IPTV will limit churn, which is Premiere’s current challenge,” she said. “In providing current subscribers with the opportunity to continue to watch Bundesliga via a Premiere subscription, we think that the company should be successful in stabilizing the subscriber base and preventing the substantial churn that had been forecast for 2006-07 following the loss of the Bundesliga rights. This is not to say that it will stabilize churn overnight — we forecast that there will net subscriber churn of 275,000 in 2006 due to delayed launch of the IPTV offer, the VDSL network constraints, etc. — but it will be at a reduced level from the substantial churn that we had been forecasting previously.”

While the deal makes strategic sense, it is not without risk, Simon said. “IPTV is a totally new concept in Germany and it has yet to be launched as yet, so one can argue that this is a large gamble on Premiere’s part,” she said. “However, in our opinion it represents the best chance that it has of salvaging something from the aftermath of the Bundesliga rights loss in December. It is certainly a calculated gamble unlike its bidding strategy in the December rights tender.”

Making IPTV a success will not be a given for DT. IPTV is in its early development stages in Europe. Only in France, where there are three operators offering IPTV services, is there the beginnings of a real strong presence for the medium. Two of Europe’s largest telcos, France Telecom and Spain’s Telefonica are pushing around the 200,000 mark for the IPTV offers in their respective countries. Telecom Italia has only just launched and BT is scheduled to launch the service later this year.

Premiere subscribers will have to acquire a DSL enabled set-top box enabled to receive broadcast channels and IPTV services. Simon believes 50 percent of these boxes will be rented, and 50 percent will be acquired by subscribers. “We estimate that 333,000 subs will have IPTV boxes by the end of 2006 and a further one million by the end of 2007,” she said. “We assume that 75 percent of these boxes are distributed to existing customers and 25 percent to new customers.”

–Mark Holmes

Sarah Simon, Morgan Stanley, e-mail, [email protected]