NDS Hopes To Conclude New DirecTV Deal

By | May 10, 2004 | Feature

NDS [NDS], which signed a deal with DirecTV in the first quarter of this year to supply Conditional Access (CA), anti-piracy measures, hopes to follow this up by concluding a further deal with the operator.

NDS CFO Rick Medlock told Satellite News, “We are confident of being a major supplier for the full DirecTV platform. I think there is a pretty good chance for us to get that contract. DirecTV is undoubtedly the biggest opportunity, as there are over 20 million set-top Boxes (STBs) out there today. Therefore, if we can supply middleware to the majority of those and we can develop personal video recorder (PVR) and iTV applications for some of the channels that will be on DirecTV that by and far and away makes DirecTV one of our biggest customers.”

NDS really cemented its position in the satellite pay-TV sector in 2003 by securing key contract wins with Viasat in the Nordics and Foxtel in Australia, among others, in the March/April timeframe. While the DirecTV CA deal may be the biggest one in terms of potential numbers, the Viasat deal is also incredibly significant. Viasat decided to move from the Viaccess CA system, which had been widely hacked, to the NDS system.

This new CA system is expected to be operational later this year. Medlock believes the deal is a “groundbreaker” in the sense it is unusual for a pay-TV operator to move from one system to another in this way. Medlock believes there could be a number of long-term benefits of the deal. “Usually, the times when people select a new CA system is on conversion from analog to digital or when you are launching a new service,” he commented. “This is the first time that any platform has switched because of piracy. Once people are confident that Viasat’s conversion has worked and done the job, I am sure that other platforms will be interested in hearing what we have got to say. Our strategy is to target those types of accounts.”

With contracts with some of the biggest satellite pay-TV platforms, Viasat, BSkyB, DirecTV, NDS will play a crucial role in making sure piracy issues remain under control. Viasat, in particular, has lost millions of euros in revenues through piracy, and it hopes its move to NDS will lead to a brighter future.

In terms of revenues, it looks as though it could be a good year for both major CA providers: The Kudelski Group and NDS. Both companies are expecting strong revenue growth during the next 12 months. It is NDS’ client base in the satellite pay-TV sector that is pacing the company’s growth.

“If you look at the population of NDS customers and compare it to some of our competitors, we have a very healthy customer base,” Medlock said. “These are customers, which are well-funded, have strong business plans and are in markets which are certainly going to see substantial growth over the long term.”

Cable Vs. Satellite

While the company has an enviable list of satellite pay-TV operators as customers, it is also hoping to make more of an impact on the cable landscape. Medlock admitted, “We have done trials with two major cable operators, and we have our existing cable deals with RCN and Cablevision, but we hope to win business with our trial operators. In terms of new customer wins, cable is probably the area where there is more chance of customer wins in terms of absolute wins compared to satellite.”

The company has around $179.4 million in cash available for acquisitions, although Medlock admitted the company is “cautious” here. It also has the capability to issue new stock.

Its last significant acquisition was in September 2003 when it purchased the MediaHighway middleware business from Thomson. The deal gives NDS the opportunity to potentially bundle CA and middleware in one package for operators. In terms of its relationship with middleware provider OpenTV, Medlock said, “We already have an existing customer base with NDS Core middleware. Ongoing, customers need an advanced architecture like MediaHighway so it made sense to try and bring the two together and provide an easier route for operators. Also MediaHighway had a contract with DirecTV.”

He continued, “Fundamentally, NDS will aim to provide middleware where our customers ask for it. But we are not going out and overtly trying to sell middleware in its own right.”

However, while both companies will work together on major accounts like BSkyB, Sky Italia and Foxtel, both will look to play a key role in the U.S. market as more interactive services become available. News Corp [NWS] is likely to drive this through DirecTV. In terms of the market opportunity here, Medlock commented, “The U.S. interactive marketplace will be huge but there is no question that the U.K. is the leader in that at the moment. However, in the future, the market in the United States will be so much bigger. With the advanced platform that DirecTV will become plus digital cable starting to make the big migration from analog and having a platform to develop applications, I think the potential market is huge.”

With a slew of new contracts in the satellite sector and the acquisition of MediaHighway, the company has increased its workforce by almost a third in the last year. The company now has 41 million active encryption smarts cards in homes around the globe. The company also played a key role in the launch of two new digital satellite platforms, Foxtel in Australia and Galaxy Satellite Broadcasting in Hong Kong. Growth should be strong here as well as on the satellite platforms in Europe.

“Sky Italia has announced that it is going to do a full swap-out of the MediaGuard Seca boxes they inherited from Telepiu,” Medlock said. “For NDS, that is probably worth around 1million to 2 million additional smart cards that we would supply on the back of that.”

He continued, “Foxtel is starting to do the analog-to-digital conversion in Australia. From our perspective, Foxtel has had 600,000 analog cable customers. With the Optus platform as well, this market could be worth an extra 1million to 2 million net subscriber additions for NDS.”

–Mark Holmes

Contact: Margot Field, NDS, mfield@ndsuk.com

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