Who says you can't make money on digital TV? While some of the biggest digital operators, such as Britain's NTL, struggle under punishing debt and most companies that make interactive TV software have yet to turn a profit, a little-known company called Kudelski Group, headquartered in the sleepy Swiss village of Cheseaux (pop. 3,000), has built a thriving global business.
Kudelski makes "conditional-access systems," the software and smart cards that allow analog and digital TV operators to charge for access to content while preventing theft of the signal at the same time. It's a niche business, but a profitable one. According to Lehman Brothers, Kudelski is likely to beat 2001 earnings estimates of $48.5 million on revenues of $277 million, which would represent increases of 24% and 31% respectively over the previous year. Some 35 million TV subscribers worldwide use Kudelski software, a number that can only grow as television operators switch to digital. Tech consultancy Ovum expects that homes worldwide receiving digital TV broadcasts will jump from 62 million in 2001 to 357 million by 2006.
Kudelski doesn't have a monopoly on the conditional-access business, however. Its chief rival, U.K.-based NDS, is 79% owned by Rupert Murdoch's News Corp. But being the only independent provider of conditional access gives Kudelski an edge: many TV operators are owned by large media companies unlikely to trust the security of their broadcast networks to rival News Corp.
CEO Andre Kudelski wants more than a mere edge. He is
plotting to help take over NDS's largest customer, Direct
TV, which has more than 10 |
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ALESSANDRO DELLA VALLE/KEYSTONE ANDRE KUDELSKI The money consumers spend in television is not something you can expand indefinitely |
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million subscribers. Here's
how. Kudelski's largest client in the U.S.,
Echostar Communications, is bidding to buy
Hughes Electronics, the parent of DirecTV.
To sweeten Echostar's bid of around $30 billion,
Kudelski would be willing to offer up to $1
billion through cash in hand and a dilution
of up to 15% of the stock. If the bid succeeds,
Kudelski will get the DirecTV business, doubling
its U.S. subscribers overnight and potentially
improving profits by 40%, says Kudelski. The
fate of Hughes Electronics (and Echostar's
bid) should be known by the third quarter.
Don't worry too much about Murdoch's NDS,
though. It has something Kudelski doesn't
— an ability to combine revenue-generating
applications like interactive sports betting
and T-commerce (buying through the TV set)
with the conditional-access system it offers
TV operators. Kudelski wants to try a different
approach. It has already bought three public-event
ticket firms and thinks it can meld television,
mobile phones and smart cards to create a
service that grants access to sporting events,
cinemas, car parks and other restricted areas.
"When you are home we can give you an easier
way to make reservations via your TV," says
Kudelski. The same smart card that provides
access to digital TV in your living room could
be used to get you into sports stadiums or
theaters in your home town. And, if you can't
book the time you want via your TV, you could
ask for an update or confirmation to be sent
to your mobile phone. Event organizers could
split the savings on mailings with TV operators.
Sounds great, except, as Lehman software analyst
Peter McNally points out, the market for such
products doesn't exist yet. Since, says Kudelski,
"the money consumers spend in television is
not something you can expand indefinitely,"
he is willing to take the chance. Besides,
in a place like Cheseaux, you have to continually
re-engineer if you want to survive.
Kudelski's father Stefan, an émigré
engineer from Poland, started the company
in Switzerland in 1951. Kudelski senior invented
a compact reel-to-reel tape recorder, the
Nagra, which revolutionized sound recording
for movies and television. The company switched
gears in the mid-1980s after the younger Kudelski
advised his father to move into software.
Andre took over in 1991, and the gear switching
shows every sign of continuing. |
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