Premiere Continues Slow Progress
Premiere, the German satellite pay-TV operator, added less than 100,000 net subscribers in the first six months of 2003. The operator continues to make slow progress towards profitability. By June 30, 2003, the operator had close to 2.7 million subscribers, still well short of the 3 million figure. However, by the end of July, the operator had gone through the 2.7 million subscriber mark.
In announcing the July results, Premiere CEO Georg Kofler said: “We are satisfied with our business performance in the first half of 2003. We still had to improvise a lot during the first six months. As well as our on-going business operations, we had to deal with extensive restructuring to continue building the new Premiere. We regard the fact that Premiere was able to record substantial growth in contrast to the general industry trend, as particularly encouraging.”
Kofler has been encouraged enough in Premiere’s recent performance to raise his own personal stake in the operator from 10.09 per cent to 20.46 per cent, indicating he believes Premiere is well on the road to recovery.
Others, while encouraged by Premiere’s recent performance, still have a more cautious view. Bertold Heil, head of the broadcast & entertainment segment, at Detecon International told Interspace: “The fact they don’t have 3 million subscribers is an indication of the troubles that Premiere is having in the market place. The issue will be: Can they get out of the niche they are in currently in? It is not a large subscriber base. You are looking at 2.7 million subscribers out of 37 million homes in Germany they could probably reach.
He continued: “The subscriber figures have not increased significantly. They are still between 2.5 and 3 million subscribers. From Kofler’s point of view, he was probably expecting a stronger increase recently. They still seem to have churn problems even though they have brought it down.”
Despite sluggish growth, the signs are still potentially good for the operator. In the first half of 2003, the company managed to cut programming costs by 40 per cent. It spent 264 million euros ($300 million) on programming in the first half of 2003, compared to 441 million euros ($501.7 million) in the first half of 2002.
The company’s balance sheet is also in much better shape. It has positive equity of 428 million euros ($486.9 million). Revenues are also on the increase. In the first half of this year, the operator managed to boost revenues to 471 million euros ($535.8 million), an increase of 26 per cent compared to last year. The operator is also expecting an EBITDA (earnings before interest, taxes, depreciation and amortisation) loss of 40 million euros ($45.5 million) for 2003. It had originally forecast a loss of 80 million euros ($91 million), so it has revised its forecasts in this area. Premiere is expected to reach the operating breakeven point by the first quarter of 2004.
Premiere also announced that the ARPU (average revenue per unit) was now around 300 euros ($341.3). The churn rate also fell from 15.5 per cent to 13.5 per cent for the fiscal year ended June 30.
Pay-TV Market Dynamics
In terms of the competitive landscape, pay-TV in Germany is beginning to show some signs of recovery. While Premiere clearly lags behind other satellite pay-TV operators in Europe, the digital TV market in Germany is seeing some significant changes.
T-Online, the ISPs business of Deutsche Telekom, has decided to become a player in the digital TV arena. T-Online intends to be one of the first ISPs in Europe to offer on- demand content to its user base, and thus be a player in the digital TV arena. With its technology partner, Fujitsu Siemens, T-Online will offer a product that enables customers to use their TV sets to access Internet services that up to now have only been available via PCs or mobile terminal devices. The device, the ACTIVY Media Center, is expected to be available in shops in the fourth quarter this year. While T-Online will not be a digital TV provider in the traditional sense, it still hopes to offer video-on-demand content as well as interactive TV series to its customer base. In this area, it is clearly one of the most innovative ISPs in Europe. The ACTIVY Media Center will provide users with a T- Online Internet portal that has been optimised for use with a TV set as the terminal device. T-Online has around 3 million DSL customers in Germany, ranking it as one of the top ISPs in Europe.
In terms of cable, because T-Online has such a dominant position in terms of broadband in Germany, the largest cable player Kabel Deutschland (KDG) will have to focus even more on a digital TV offering. Kabel Deutschland is owned by Apax Partners, Goldman Sachs Capital Partners and Providence Equity after three venture capital companies acquired the six regional cable networks from Deutsche Telekom in a deal valued at 1.7 billion euros ($1.9 billion). New Kabel Deutschland CEO Roland Steindorf has made it clear the importance of digital TV to his company. “New investments in the digital TV future are a clear goal of KDG in order to enhance the TV experience. Through pilot projects, different product portfolios will be tested for customer acceptance and profitability in the near future.”
The combination of a more market focused Premiere, Kabel Deutschland and T-Online could lead to significant momentum in the German digital TV arena. For Premiere, the challenge is to continue its progress in recent months and build its subscriber base further in a rapidly changing environment.