The combination of the Kudelski Group and OpenTV should create a much stronger force in the satellite pay-TV and other markets, as Kudelski gained control of OpenTV in a deal valued at $130 million. Kudelski announced Oct. 19 that it signed a stock purchase agreement with OpenTV owner Liberty Media to acquire voting control of the manufacturer of set-top box middleware for satellite, cable and Internet Protocol (IP) TV platforms, giving Kudelski the ability to offer a combined middleware and conditional access system to the market.

Change In Approach

Kudelski and OpenTV previously have worked together to deliver various digital TV services, including personal video recorder, video-on-demand and other on-demand services, electronic program guides and content syndication for on-demand services, plus interactive applications and enabling technologies for enhanced and interactive advertising, but the acquisition marks a significant change for Kudelski in terms of its overall strategy.

The acquisition will enable Kudelski to offer some compelling solutions to satellite pay-TV operators, particularly those looking at Internet Protocol (IP) TV as a distribution platform, Andre Kudelski, CEO of Kudelski Group, told Satellite News. “DTH is one of the most mature markets. But, you still have some opportunities in Asia for some extra deployments. In satellite, you have some opportunity to have mixed solution between satellite and IPTV. That is the first element. Outside of the USA, digital cable is less developed than satellite, but there is a very important market potential for this sector. IPTV is a complimentary path to satellite. I think DTH operators will look for ways to offer complementary interactive on-demand services such as . Satellite in the broadcast model is the most efficient way to deliver most of the channels. But, if you have on-demand content, an IP solution over ADSL or over other IP networks is a very interesting complement.”

As recently as April 2004, Kudelski had stated that he had no interest in taking such a path. “I think bundling is really not the way to proceed in this business, because every client — at least the large ones — have different needs, so you need to have flexibility to address those,” he told Satellite News sister publication Inside Digital TV.

Explaining the change in strategy and why the company has decided to make the move now, Kudelski told Satellite News, “Firstly [two years ago], there was a wider choice of middleware,” he said. “There was also less of a requirement from operators to have a turnkey solution, since most of them were pioneers. The market opportunities are also shifting. Around two to five years ago, the opportunities mainly came from developed countries, where the operators have in-house capability to select by themselves independently [conditional access] and middleware. That is something that has changed in the recent past. I would say we have adapted our strategy in the last 12 months, when we have seen some important operators ask for turnkey solutions, including operators in Europe. This has been new and one of the important changes we have seen in the market.”

The shift in strategy brings Kudelski more in line with its biggest competitor, NDS, which has been able to offer a combined middleware and conditional access solution since acquiring Canal+ Technologies‘ middleware business, Mediahighway, in 2003.

“We will become, after this transaction, the number-one in terms of deployments of middleware worldwide,” Kudelski aid. “The second element is to be able to propose different types of business models coming from standard pay-TV to combinations between standard digital pay-TV and advertising models. I think that is a very interesting element. Today, we have been offering premium television and basic access pay-TV, but we have some specific [pay-per-view] models like digital terrestrial in Italy. Now, by adding an advertising and interactive model, interactivity is creating a much more complete business offer than we had in the past.”

Jim Chiddix, CEO of OpenTV, also touts the potential strengths of this alignment. “This will make OpenTV a stronger competitor,” he said. “We became profitable last year and we continue on a positive path financially. One of the results of the transaction will be an influx of $20 million in cash that will be invested in [research and development]. This is a very positive deal for both parties.”

The Competitive Landscape

The addition of OpenTV’s customers bases will give Kudelski a major foothold with satellite pay-TV platforms across Europe. Kudelski announced a deal earlier this year with SES Astra which saw the satellite operator select the Nagravision conditional-access system for the launch of SES Astra’s new digital-TV infrastructure for the German market. Kudelski also works with other major satellite pay-TV operators — Premiere in Germany, Canalsat in France, Sogecable in Spain and Polsat in Poland, among others.

OpenTV’s most recent deal in the satellite arena came with the leading satellite pay-TV operator in Turkey, Digiturk, for a new high-definition (HD) platform. In another major deal announced in 2006, Sky Italia launched HD services on OpenTV’s advanced digital-TV middleware platform. The Italian operator began deploying HD-capable set-top boxes in May. OpenTV also worked with French satellite pay-TV operator TPS on its rollout of HD services, and OpenTV has also worked with BSkyB in the United Kingdom.

“This puts us in a better position to offer customers the solutions they want,” Chiddix said. “I think it is especially significant in two new markets:IPTV and DTT. For IPTV, the two companies have complementary technologies that include client software, server software and [conditional access]. For Digital Terrestrial Television (DTT), even though it has just begun to develop in some markets, there is huge future potential. Kudelski has gotten traction with the innovative use of pre-paid smart cards for premium events, and there is an opportunity for us to combine forces as we pursue DTT. We currently have a very large market share in satellite, but there are certainly opportunities in developing other markets as well.”

The challenge for Kudelski is to take advantage of its combined offerings and customer base to increase its market share and promote the deployment of advanced interactive services as well as providing enhanced levels of security. In terms of where he see possibilities, Kudelski said “in Europe there are important things that may be added in terms of offerings. There are even very large operators which have not selected middleware until now. You have the second element, which is an evolution of people that are interested in having mixed network delivery. So, for example, you have satellite and IPTV, or terrestrial and IPTV. There is an important role for us to play. Between Eastern Europe and Asia, you have a real set of opportunities where the synergies between [conditional access] and middleware are becoming a really important element.”

As well as still expecting a strong deal flow from satellite pay-TV operators, Kudelski believes new markets such as IPTV and mobile TV will prove fruitful for the vendor. “We expect to win contracts in traditional digital TV sectors as well as in IPTV and mobile TV. If you look during the last 12 months, this is what has happened. We expect to have some extra interesting news flow in terms of IPTV deployments. As part of our ongoing sales and marketing efforts, we expect to announce significant deals in the next few months.”

Kudelski ultimately wants to offer an integrated solution across different platforms. “OpenTV is a really important reference in terms of satellite players,” he said. “It has also interesting deployments on cable. There are some efforts to be done on IPTV and terrestrial. Their first priority is to have some extra offering in IPTV and then DTT from an OpenTV point of view. Basically, in the next few years, we are hoping to have a smooth solution all over these different platforms. You also have the [digital video recorder] solution, which will be more elaborate. You also have this new concept of an [electronic program guide].”

Kudelski also has a timetable. Within 12 months, “we want to be a turnkey solution provider, but at the same time we want to be able to continue to offer different components in [conditional access] and middleware,” he said. “We want to be able to sell components to operators who decide to do system integration and build themselves a turnkey solution and to be able to offer turnkey solutions that want one vendor. In the next 12 months, we expect to be able to gain some market share in new market areas, so [conditional access] with interactivity, IPTV and mobile TV will also be two main focuses for the company.”

— Mark Holmes

Contact: Anne-Sophie Schlachter, Kudelski Group, tel: 00 41 21 732 07 38; Barbara Cassidy, OpenTV, e-mail: [email protected]