Satellite TV broadcasting is set in the geostationary satellite over the equator, the first terrestrial television reception by satellite earth stations transmitting television signals, and then forward it to the designated area on the planet, from the receiving device on the ground for the TV to watch. Achieved in this way is called the satellite television broadcasting.
INSIDE SATELLITE TV Edited by Chris Forrester Volume 6, No 4 THE BUSINESS OF DTH BROADCASTING February 23, 2009 NDS: “World now very uncertain” Pay TV “working very hard to maintain subs” BY CHRIS FORRESTER “We announced the deal in July last year, and there were more than a few shareholders and analysts com- Dr Abe Peled, CEO at the now privately held NDS, plaining that $60 a share was not good. The indepen- speaking exclusively with Inside Satellite TV, said he was dent directors examined everything and ended up rec- enjoying his first flush of freedom from the daily pres- ommending $63 a share, and when I travelled around sures of the stock market. “But it won’t last,” he joked. “I talking to people in August they all seemed to say this am enjoying the freedom just at the moment, but maybe was better, but they were not all that happy. Two weeks we have swapped one set of challenges for another! It later in September when everything fell of the cliff, well has been a wonderful year, and pulling this deal off then they were much happier! As September went on all seems almost incredible now given the current climate. I they wanted to know was whether the deal was to be am not sure the deal could be done today. We were also renegotiated downward, or would it still happen? They able to distribute $100m to our employees. I am very proud of that, and that Permira did not back out.” " continued on page 5/6/7 # “World now very uncertain” 1 NDS: were all very nervous. Timing is everything. But even in December our share price was still $45 a share, because the market was worried that the deal wouldn’t happen. We needed 75% shareholder approval, and got better than 99%.” [see panel for details of the transaction] “Then the Bank of New York received the funds and held the cash. The lawyers spent the best part of a week trying to figure out how to protect the cash in the event of the bank being somehow affected by everything that was happening on Wall Street. The world is now a very uncer- tain place. I don’t ever recall anything like the situation we have today. Even the Dot-Com crash, bad as that was for some technology companies, didn’t affect everything the way it is today. Then the problem was highly localised. Dr Abe Peled Now, people don’t even trust the banks. This hasn’t hap- pened since World War 2, at least in mainland Europe. places like Romania today, badly affected by local deval- We as a generation have never experience this before.” uations which affects operators who are having to pay for “People are saying that the pay-TV industry is more or everything in dollars. They are charging their subs in less immunised from the collapse, but in my view noth- local currencies, and this is difficult for them. It is much ing is immunised. People involved in well-established the same as happened in Latin America in the late pay-TV businesses will tell you they are having to work 1990’s when again currencies fell through the floor. But much harder for their subscription income and to get the the fundamentals, even in places like Russia, still show same results. The Sky or DirecTV results are stellar com- good local demand but the projects need funding. Most pared with the general picture, but they say they’re hav- of these businesses are in their early start-up stages ing to work harder to hold onto those revenues. It means when they are on the way to break-even, but they still more marketing, and more concessions to customers. need cash. What do you do when credit and funding Sky has just reduced the price of its Sky+ HD box to just dries up?” £49. It is a bargain, and a wonderful deal. Last month, unexpectedly Gateway Broadcasting “The problems for us comes with less-developed closed is African DTH operation. Peled said the news countries, where we might be sitting on a nice contract came as a surprise, especially given that Kinnevik had but if they decide to alter their plans what do we then do divested itself of its stake profitably [See Kinnevik Panel]. with our contract? It means a further round of discus- “Frankly, added Peled, “I don’t know what happened sions and possibly downward pressures. This is the situ- with Gateway in Africa because they were doing well and ation with some marginal operators where the business it was a viable business. It was working fine, so I hope plan was always going to be difficult. Look at Russia or somebody will buy it. Kinnevik withdrew from the project " NDS financial restructuring explained The NDS ‘buy-out’, valued at some $3.2bn, saw The financing for the deal, aside from the Permira Advisers LLP overcome any market caution rollover of a portion of News Corp’s stake, called or uncertainty. Announced last June, the deal saw for Permira to provide $915 million of equity. NDS’ majority owner News Corp (which controlled Permira had reportedly made its capital calls for NDS’ super-voting shares and had a 72% econom- the buyout on Jan. 7. Permira had committed ic interest in the company) selling down its owner- financing from J.P. Morgan plc and Morgan ship to 49% and eliminating NDS’ dual-class struc- Stanley Bank International Ltd. for a $1 billion ture. News Corp received $1.52 billion in cash and senior credit facility and $385 million mezzanine an NDS note for $242 million. facility to fund the deal. NDS gave notice The deal closed with an agreed price of $63 per following the court approval for the funding to be share. NDS shares traded just ahead of the close available, the source said. (Wednesday Jan. 28) for roughly $61, however dur- The deal was conditional on NDS having $724.9 ing the year-end and New Year period market anxi- million in cash from internally generated funds at the ety and uncertainty saw share prices tumble to close, which was also to be used to fund the share around $45. Shareholders, including News Corp, purchase. NDS had roughly $711 million as of Oct. approved the deal Jan. 13. 11. The deal wrapped on Feb 5. www.insidesatellite.com February 23 2009 5 just a few weeks before it closed down, and I under- stand they might well have stayed and bought the busi- Gateway & Kinnevik ness had they known it was going to fold. I am sure other people are looking at it.” Investment AB Kinnevik has numerous holdings “At the margins we are feeling that in developing in media-related businesses, not least Modern markets hit by currency changes it might be difficult. Times Group, Tele2, Metro International, Millicom There are plenty of positive signs, however. Look at Cellular, etc. Gateway Broadcasting was a pan- people like Bharti in India, which is in a very strong African pay-TV operation with some 120,000 position. Same with News Corp with its Premiere subscribers, and at the time of its collapse was [Germany] operation, which is going to see a big push “Africa’s fastest-growing pay-TV operator”. in the second-half of this year. But the more marginal Kinnevik’s January 7 announcement said it had [pay-TV] operation, perhaps bank or equity funded, sold its stake for $23.6m, and received 1.8 times they may have problems. the amount invested in May 2007. “From the NDS perspective the biggest impact on us is still currency, not helped by the Pound falling 25% and going to take time, and I’d guess that we will see some the Euro weakening. However, we’re also pretty well progress being made around 2011. Remember, many balanced given that we are active in so many markets. things have to come together: first, there has to be the We have re-looked again at our plan for the year and critical mass of boxes that have the ability to work with while I am the first to admit I am by nature an optimist I the scheme. They have to measure in the millions, but think it is fair to say that things will work out sooner or then we have to have the broadcast and back-office sys- later. People cannot put off for ever buying a car, or the tems to handle these demands. In comparison, today’s other major expenditures that we all have. I wish I could ad-market is mature and people know how many eye- put a timeframe on when it will start looking better, but I balls have seen an ad. Now, we have to drill down while am hopeful. The downside will, frankly, affect some of at the same time accounting wholly for the end results.” our competitors very badly. They are not operating with “Everybody that we’ve spoken to, at the agencies and the reserves we have and margins will be squeezed. broadcasters, believe that this is the right thing to do. There will be consolidation, or even failures. There are Now we have to have the same dialogue with the cre- some people in the so-called software CA side of the ative community. I fundamentally think that this technol- business that I can see failing. Even some Tier 1 telcos ogy will increase the total amount of cash going into TV supplying IPTV have yet to make real headway on their advertising. The great thing that Google ha done is not subscriber numbers, they are entirely unimpressive. We just to redistribute the advertising pie but it has brought supported SES Americom with their IP Prime proposi- new advertisers in. Previously these advertisers didn’t tion, which we though was a solid proposition. Their idea have a voice. People who provided a very local service, was to go via satellite to the local exchange where these perhaps just using Yellow Pages now all of a sudden local operators could package the bundle up. But have a world audience.” nobody was biting. It seems that people either have Peled gave some compelling examples. “Look at cable or DTH or they cannot afford much else.” Porsche, which tends never to advertise on TV because 99% of that audience are not their target. It would be very wasteful. Today, they have no choice expect to go “We supported SES Americom with their IP Prime propo- with magazine advertising which while good is not as sition, which we though was a solid proposition. Their powerful as TV. What if we could give them that access? idea was to go via satellite to the local exchange where The same with expensive watches and the like.” these local operators could package the bundle up. But He explained that these same back-end systems, nobody was biting. It seems that people either have needed for the advertising model, would also help ser- cable or DTH or they cannot afford much else.” vices like Sky’s Anytime TV, so that the programmes stored on the hard drive could become more relevant to the viewer. “Today, Sky Anytime is not targeted in any Peled remains very optimistic about the prospects for way, but our back-end system would change that.” targeted advertising, using the growing number of He was also of the view that set-top box hard drives deployed set-top boxes. “We hired some consultants to would have to increase capacity. “Today’s biggest com- help us fully understand the advertising business, plaint concerns the size of the hard drive. 300 or 320GB including their language and methods, and understand- is simply not sufficient in an HD home. An external drive ing what is important, and how it is bought and sold. will change this. The issue with external discs is that There was much that was initially foreign to us. Now we there are 101 versions out there, so the answer would have a much better understanding. We now have dates be for a branded and approved external drive that the when two major pay-TV broadcasters will introduce tar- box recognised and conformed to an understood speci- geted advertising. Sky has confirmed their interest, as fication. We have done a lot of work with Seagate to has DirecTV, so we are working closely with both. It is improve the drivers because initially we had some prob- " www.insidesatellite.com February 23 2009 6 lems with the head crashing on the drive. Patterns of still very enthusiastic for India. “We have some 5m sub- usage are very different on a PVR than on a PC. Then scribers in India, and everything is going well. Dish TV we had troubles with the noise that the disc was making. has seemingly stopped growing and is doing poorly, but These problems have all been solved but it has taken the new DTH entrants are winning subscribers although time. Products that are linked to our receivers in any way revenues are modest with typical prices of just $5 a have to be really bullet proof in terms of reliability before month. Bharti is just launching a new advertising cam- you associate them with a pay-TV operation.” paign, and remember that the population is simply huge “We now have some of broadband hybrid boxes and not being touched by pay TV. We have just installed with DirecTV, although they’re not yet pushing launched a new concept of the PVR [for India and simi- their use fully at the moment because of concerns about lar markets] which is a Memory Stick that gives you a 1 the OTT supply of internet video. There’s no doubt in my tuner PVR and 8MB of memory and adds about $25 to mind that OTT internet will happen but it has to be the the cost of the box. I continue to be very optimistic about same experience as on a TV. Nobody calls up YouTube India, but I am cautious on China. They have financial because there’s a problem with a video. But they’ll call problems and there is such a small middle class which DirecTV if it doesn’t display correctly on the TV. It all is usually essential to the success of pay-TV.” means that the industry is ultra-cautious about these new developments because it could ruin their brand. It will happen, but it has to be flawless. In my opinion at the Peled on Mergers & Acquisitions risk of losing a few early adopters it is better to get it “We have always been careful buyers. MediaHighway cost right, delay a service if necessary, and then you’ll get the us €60m, and has been a fantastic acquisition and much mass market.” cheaper than Mr Kudelski’s acquisition of 30% of Open TV Looking forward, and Peled said that people are which cost him $200m!” clearly happy and enthusiastic to pay extra for HDTV. “I think Sky is now looking for the next frontier. The timeframe is harder to predict, but in the same way As to his own Conditional Access and Middleware that Hollywood likes 3D, it brings in extra revenues technology market, Peled predicted a further shake-out and is much harder to replicate on bootleg DVDs. I in the number of vendors, especially now that margins think 3D for television is still some way off, but it will were further being squeezed, and with IPTV failing to happen. HD has not yet run its course. Hybrid boxes make any real progress. “The next year might well pre- will provide another level of richness for viewers. It is sent opportunities. Our major reserves have gone as hard to say what will come after these developments. you know as part of the deal, but we are still sitting on Is it Super HD, or is it 3D? In the next three years we about $100m so purchases are quite possible. But I will see a continuing price erosion on the cost of the have to say there doesn’t seem to be much that we are box. A year ago there was just a handful of HD missing just at the moment, but if there are opportunities channels, now the UK has more than 30 HD channels – and certainly prices look cheap – then we’ll look. We and the production houses are now shooting in HD. have always been careful buyers. MediaHighway cost So, a timeframe for 3D is harder to predict but it is us €60m, and has been a fantastic acquisition and much going to happen.” cheaper than Mr Kudelski’s acquisition of 30% of Open As to new and developing markets for pay TV, he was TV which cost him $200m!”
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