Kabel Deutschland Drops Public Channels as German Cable War Heats Up

3:35 AM PST 1/8/2013 by Scott Roxborough

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The country's biggest cable company drops several regional channels after public broadcasters ARD and ZDF stopped paying carriage fees.

COLOGNE, Germany - Kabel Deutschland, Germany's largest cable operator, has fired the latest salvo in an ongoing battle with the country's public broadcasters, dropping several regional channels operated by public networks ARD and ZDF. The move is in retaliation for a decision by ARD and ZDF to stop paying around $35 million (€27 million) in annual carriage fees to the company.

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Unlike in the U.S. where cable operators pay carriage fees to networks, German operators typically charge channels.

The cable giant, which serves 8.6 million customers across Germany, has been in a legal battle with the country's public broadcasters since last summer, when ARD, ZDF and German-French public broadcaster ARTE cancelled their carriage contracts with Germany's three major cable operators. The public networks argue that German law requires cable companies to carry their channels anyway.

Kable Deutschland has struck back by dropping regional public channels from its nationwide service, so that customers will only receive regional public channels from their own area. Previously, all regional public channels were available nationwide. Kabel Deutschland will also reduce the bit streams of both the digital standard definition and high definition streams for ARD and ZDF channels. The dispute began last April when ARD/ZDF launched 10 new HD channels, but refused to pay cable operators to carry them.

Polo Tang, an analyst for UBS, sees Kable Deutschland's move positively, arguing that removing the regional public channels "will free up bandwidth" on its network that the cable operator could potential sell to other broadcasters to partially offset the lost carriage fee revenue. Tang, however, is among several analysts that expect German cable operators and the public networks to reach a compromise in the coming weeks.