Premiere, the German satellite pay-TV operator, continues to show positive signs in its bid to become profitable in Germany. In its 2002 results announced Feb. 26, the operator said it had close to 2.6 million subscribers at the end of December, a 7 per cent increase compared to last year’s figure.

Premier’s revenues for 2002 were 825.7 million euros ($906.1 million), a 4.1 per cent increase compared to 2001. Premiere’s EBITDA (earnings before interest, taxes, depreciation and amortisation) loss for 2002 stood at 340 million euros ($373.1 million), a 77 per cent reduction from 2001.

Premiere’s high-risk strategy of offering a low-level package to induce customers to subscribe appears to be working above and beyond expectations. The package – Premiere Start – is available for a bargain rate of five euros ($5.49) a month and gives subscribers a pay-TV taster. It is one channel with films, live football and various themed programmes. So far, it has been a surprise success.

According to Premiere, around 25 per cent of Premiere Start subscribers are switching to a premium package within five months. Premiere had expected one-third of these subscribers to upgrade within 12 months, so the operator is clearly on track.

Bertold Heil, head of broadcast and entertainment segment at German consultancy Detecon International, told Interspace: “Everybody in the industry and including people I talked to at BSkyB did not think Premiere would be able to up sell their products like this. They were saying that once they went to this low price segment, they could not turn these subscribers into the more expensive packages.” Not for the first time, Premiere is confounding doubters. Clearly, the continued conversion of Premiere Start subscribers into premium subscribers will be a major factor for Premiere’s success going forward.

Around 70 per cent of Premiere’s subscribers are on Premiere Super, a premium package that bundles both sports and movies. The ARPU (average revenue per user) figure has increased to 25.39 euros ($27.86), despite the popularity of Premiere Start.

This year, the operator expects its subscriber base to reach 2.9 million. Premiere has already gained 34,000 subscribers in January. The operator hopes to reach EBITDA breakeven in the first half of 2004.

Premiere has a good chance to reach the 3 million subscriber figure by early 2004, says Heil. “It is very difficult to estimate their actual subscriber development but we think they will reach the three million subscriber mark by the beginning of next year. There was market momentum when they introduced a low-segment price plan, but I am not sure they will able to keep this speed of growth up.”

Premiere has also met a number of content challenges head on. It signed new contracts with seven of the eight major Hollywood studios to supply content to its cinema channels.

“From 2003, Premiere will be showing all the top international and national cinema movies – some 15 months before they are screened on conventional television, and without commercial breaks,” the company said. This is potentially key for the operator as with Germany having a strong free-to-air (FTA) channel line-up, this could translate into a major competitive advantage.

In terms of sports content, Premiere hopes to conclude a new agreement for European Champions League. It has also signed a new four-year deal to screen Formula One Motor Racing.

Turning It Around

Despite getting Premiere’s business into good shape, becoming a successful pay-TV business in Germany is still far from easy. Analysts are still split. Roland Pfaender, a media equity analyst at BHF Bank, told Interspace: “They are turning it around. It is not proven that they are going to be successful in the future, but they are at least taking the right steps. The competition in the TV markets in Germany is very tough. They are doing the rights things but it somehow seems too late.”

Heil is more optimistic. “I think the management is doing a great job. [Management] has been able to take off the most difficult cost burdens of the company. I am pretty confident they will be able to break even. In the long run, the challenge from 2004 will be to introduce a service bouquet that differentiates them from FTA television. They still have a lot of homework to do right now. They need to do something to go beyond the four and five million mark in subscribers. I don’t think low-priced bouquets will help in the long-run to boost subscriptions.”

–Mark Holmes

(Contact: Roland Pfaender, BHF Bank, e-mail: [email protected]; Bertold Heil, Detecon International, e-mail: [email protected])