[Satellite News 07-13-09] Sky Deutschland, the German pay-TV operator formerly known as Premiere, is at a crossroads. Beset with recent issues of piracy and reports of false subscriber figures, the operator has called for widespread internal change. However, despite a new management team on board, some analysts are not convinced that the company can turn itself around.
    Mark Williams, ex-head of Sky Italia, is the man in charge of leading Premiere’s resurgence as Sky Deutschland — the name change was approved by shareholders July 9. Under Williams, Sky Deutschland has launched channel packages under the Sky brand for the first time in its efforts to reclaim lost ground.
    However, some analysts question the operator’s move from the Premiere brand to Sky. Sonia Rabussier, a satellite equity analyst at Oppenheim told Satellite News that the German people are not familiar with Sky and will not make the connection to the new brand. “From my point of view, everybody knew about Premiere, It was a very well established brand in Germany. I think it is a big mistake to move to the Sky brand. I think the reasons why investors reacted positively was because most of the investors come from the United States or the United Kingdom. They make natural comparisons. It will result in massive impairment and losses in the profit and loss, and I see it as a big mistake,” she said.
    Sky Deutschland is investing heavily in content, with new high-definition packages on the horizon. But Rabussier does not believe German customers are ready to dish out much more than 30 euros ($41.90) per month for pay-TV, which, according to her research, does not allow for a sustainable business model. “In my estimates, I don’t think Sky Deutschland will be able to reach free cash flow before 2012. I am afraid 3 million customers in the current cost structure will not be enough to make the company profitable,” she said.
    Rabussier is not convinced Germany has the same dynamics for satellite pay-TV to be successful the way it has been in the United Kingdom and Italy. “I am afraid Mark Williams is overestimating the potential of the German pay-TV market. … You cannot do the same things in Germany that you did in Italy with Sky Italia. They are completely different markets. Pay-TV penetration in Germany is around 10 percent. You will never have 40 percent pay-TV penetration like in United Kingdom. The 20 percent (rate in Italy) is also very ambitious,” she said.
    Peter-Thilo Hasler, a satellite equity analyst at Viscardi Investment Banking, said Williams is establishing a long-term strategic plan for Sky Deutschland similar to his previous strategies at Sky Italia. “Supported by a substantial raise of programming and marketing costs, Sky Deutschland will move to a buy-through packaging model, where subscribers will need to purchase basic content before they are able to subscribe to premium sports or movie packages. Given the current severe economic downturn, operational difficulties in executing the strategic plan could arise, with subscribers, cash flow or operating profit being worse than we forecast,” he said.
    Frank Neumann, a satellite equity analyst at Bankhaus Lampe, said Sky Deutschland will find it difficult to meet its own guidance of 3 million to 3.4 million subscribers by the end of 2010. “We believe that the number of subscribers will be at the lower end of the guidance,” he said in a report.
    But ome analysts have a more positive view of the transformation. In a research report, “Building Blocks in Place,” Nick Bertolotti, a research analyst at Credit Suisse, said despite concerns about the difficulties of the market, he is willing to give the new management the benefit of the doubt as he believes the operator is now in a good position to bounce back. “In recent years, Sky Deutschland has faced a number of issues which have now been for the most part resolved. Sky Deutschland has secured the Bundesliga rights to 2013 on more favorable terms; the piracy problem has been dealt with; the company has successfully refinanced and Sky Deutschland ‘s new management team has formulated a business plan to return the group to profitability, drawing on its proven experience at BSkyB and Sky Italia,” Bertolotti said in the report.