[Satellite News 10-09-08] Premiere, Germany’s leading satellite pay-TV operator, is in a state of flux, mired in a scandal over bloated subscriber figures which already has claimed the company’s CFO and chief marketing and sales officer.
    Premiere announced Oct. 2 that it expects its 2008 earnings before interest, taxes, depreciation and amortization (EBITDA) to be a loss in the range of 40 million euros ($54.4 million) to 70 million euros ($95.4 million), as the company cuts its subscribers base from 3.6 million at the end of June to 2.4 million at the end of September. Premiere attributed the subscriber drop to adopting a classification strategy “in line with that used by other successful pay TV companies.”
    CFO Alexander Teschner’s resignation was announced at the same time as the new subscriber figures. The resignation of Oliver Kaltner, chief marketing and sales officer, was unveiled Oct. 8 only three months after he took the job. CEO Michael Börnicke resigned Sept. 10, but according to Premiere, it was for “personal reasons.”
    As a result of the EBITDA outlook, Premiere has enterned into discussions with its banks regarding a restructuring of debt facilities “We are conducting a thorough review of operations and are confident that this will result in a new strategic direction supported by a financially sound business plan for the future growth and profitability of Premiere,” CEO Mark Williams, said in a statement. Williams also will assume CFO duties while the company searches for a replacement.
    “Bad news from Premiere is no longer a great surprise, but the announcement made last Thursday took the biscuit,” Peter-Thilo Hasler, a media equity analyst at Viscardi Investment Banking, said in an Oct. 6 note to investors. “Premiere has been setting its subscriber figures far too high for years: 3.6 million subscribers at the end of the half year shrunk to 2.4 million subscribers after nine months. And they had not maliciously conspired to all end their subscriptions at the same time but had never been paying subscribers in the first place. During the ongoing adjustment to comply with international standards, there was identification of 606,000 subscribers who originated from contracts from partners like Neckermann, the HypoVereinsbank or Focus Magazine and were never paying customers. In addition, there were 334,000 zombie records in their files, i.e., subscribers whose contracts had expired but who had not yet returned their smart cards to Premiere.”
    According to Hasler, the worst news for Premiere is that what should be a growing business is not growing at all. “The most frightening fact in the new subscriber statistics is that Premiere has steadily been losing subscribers since going public, although new jubilant announcements had been published every quarter celebrating a growing subscriber base. How the former Premier CEO Börnicke could promise a rise to 10 million subscribers under these circumstances is his own special secret.”  Premiere conducted its IPO in the 2005 first quarter.
    Daniel Kerven, a media equity analyst at UBS, said News Corp., which has a 25 percent stake in Premiere, could look to acquire the entire company. “We believe that News Corp. is in Germany for the long term, and would see this as an attractive opportunity – if News Corp. fully takes up its rights then it could well breach the 30 percent ownership threshold that would trigger a full bid,” he said in a research note. “This would only have to be at the three-month average, and many shareholders would not accept at these levels. If Premiere wanted to realize a significant economic interest to capitalize on the longer term opportunity, then it would have to offer a premium. News Corp. did not buy into Premiere for its near term EBITDA but to gain access to a platform to address the future growth opportunity in the German market.
    Kerven estimates that Premiere will have net debt of 306 million euros ($415.4 million) by the end of 2008 and for debt to peak at 470 million euros ($638 million) in 2010. Premiere “will almost certainly breach any covenants this year and next given our expectation of an EBITDA loss, and it will be dependent on the banks’ allowing it to renegotiate the terms of the loans. We understand that the lenders are made up of a consortium of three German banks and RBS. Given it is in the banks interests that Premiere continue trading, and the relatively low level of debt both in absolute terms and relatively to revenue, we believe that there is a 50 percent probability that Premiere can refinance.”