The deal, though still awaiting antitrust approval from the European Commission, also would make the new company Europe's No. 1 TV service and leading player in the emerging digital pay-TV market.
In an increasingly fragmented TV market, both parties know they can't rely on ad revenue forever.
"The maneuver is about the future," said Jane Perry, director of European media research at Young & Rubicam, London. "Both are looking ahead to digitalization for extra revenue. They are going for the big time."
Analysts believe CLT, considered the most successful international broadcaster in Europe, approached Bertelsmann to avoid being sidelined by other media rivals investing in digital TV.
The company was particularly concerned that its lead in European broadcasting will be eroded by the recent $456 million digital TV alliance signed by Rupert Murdoch's British Sky Broadcasting, the successful French pay-TV service Canal+, Bertelsmann and Havas, the French advertising and media group.
"The merger brings CLT into the fold," said David McMurtrie, director of international media at MediaCom, London, Grey Advertising's international media buying arm.
CLT brings to CLT-UFA, which also will be based in Luxembourg, 12 ad-supported TV channels, including the Walt Disney Co. joint venture Super-RTL. Bertelsmann comes with UFA, its audiovisual unit with interests in Germany's biggest TV channel RTL, RTL2, Vox and Premiere, the country's only pay-TV service. Bertelsmann and CLT are controlling partners in RTL.
However, because UFA is much smaller than CLT, Bertelsmann is to pay the Luxembourg group $885 million.
The cash will come in handy for CLT, which was among the first broadcasters to announce plans to enter the digital TV market. But the money to do so and pay for the programming required hasn't been there. CLT's annual sales growth slowed from 31% in 1991 to an estimated 9% last year. It has been selling assets to concentrate on its core broadcasting ambitions. Among the holdings sold were its Tele Star group of TV guide publications for $280 million to U.K. magazine publisher EMAP, and its 25% share in U.S. TV programmer Saban.
Zenith Media, London, predicts that by the year 2005, pay-TV subscriptions will yield $24 billion, nearly 50% of all TV revenues in Europe. CLT, which as a privately owned company registered in Luxembourg cannot, by local law, diversify into non-media ventures, has to tap into the digital pay-TV sector. CLT, which has had subscription TV experience via Multi Vision, a French pay-per-view service which it holds a major share in, could benefit from Bertelsmann's experience in pay TV. Bertelsmann is a major shareholder with Canal+ and the Kirch Group in Premiere.
Kirch is already testing its d-box digital TV set-top decoder in Germany, while CLT, with Bertelsmann and Deutsche Telekom, are leading Multi-Media Betriebsgesellschaft, a consortium set up to launch a rival decoder.
GERMANY IS KEY
That is why industry observers believe Germany will be the initial focus of the pay-TV market. With 13 million cable homes, it is Europe's No. 1 cable market. Through RTL, CLT-UFA will operate Europe's top TV service by language, as the station is also seen in German-speaking Switzerland and Austria. As France and Spain already have a successful pay-TV market through Canal+, Italy is very likely to be next battleground for the pay-TV business as the broadcast market there remains underdeveloped.