[Satellite News – 07-14-08] Premiere had a difficult beginning to 2008, as the German pay-TV operator disclosed in February that hackers had compromised its platform.
    The breach of the security system, provided by the Kudelski Group, allowed hackers to watch the pay-TV programming illegally and forced Premiere to introduce a new generation of smart cards. In April, Premiere unveiled a plan to work with two conditional access vendors, adding NDS encryption technology to all new receivers.
    “It was necessary to change our encryption system due to the security gap that had arisen, Hans Seger, Premiere’s chief programming officer, told Satellite News. “… Working with the two leading global encryption systems enables us to react much more flexibly to any attacks from hackers. The piracy issue has affected our business ever since the 2007 Christmas season. It has retarded growth of both revenues and subscriber numbers and had a particularly detrimental impact on our ability to attract new customers.”
    The challenge for Premiere will be to make up lost ground in one of Europe’s most lucrative markets for pay-TV, and while competitors such as Deutsche Telekom are eager to establish footholds in the market with IPTV platform, Seger believes satellite will still be a prominent distribution platform in Germany in the next few years.
    “IPTV is an important innovation for the TV market and represents an additional distribution channel alongside cable, satellite and terrestrial television,” Seger said. “In recent years it has become clear that satellite is an increasingly significant distribution mode. The number of households that can receive satellite television is growing steadily. We believe that this trend will continue in the future, as possession of a satellite dish guarantees freedom of program choice. It also remains a relatively inexpensive way of viewing television.”
    Premiere’s first targets in its efforts to get back on track are the people watching the programming using hacked smart cards. “We believe that we can attract around 150,000 viewers who are currently watching our programs illegally to become paying customers after we have implemented the new, improved Nagravision system and the new NDS Videoguard encryption system, which we expect to have been completed by the end of the third quarter,” said Seger. “In the second half of the year we will also be focusing on expanding our sales and marketing activities. This month, we have introduced a simplified packaging and pricing structure, which should result in higher revenues per customer and enhanced upselling potential.”
    A new pricing structure could be important as the pricing strategy seems to have a been particular weakness for the operator. “After the loss of the Bundesliga broadcasting rights in 2005, Premiere faced a serious issue: Customers cancelled their subscriptions,” Stephan Klepp, a media equity analyst at Berenberg Bank, said in  recent research. “This led to an overhaul of the pricing policy and massive incentives for subscribers to stay on board. Consequently, Premiere diminished its own negotiation power over its customer base, as they realized that incentives such as discounts and free months can be gained. Since the clients’ perception of negotiation power prevails, Premiere is set to face continuous pressure from the subscribers’ side. It will be interesting to see if a new simplified pricing structure gains favor with customers.”
    Premiere also could bring new set-top boxes to the market. “We are interested in developing interactive applications for the Premiere interactive receiver,” said Seger. “We are currently negotiating intensively with receiver manufacturers and expect to remain within the vanguard as far as this technological advance is concerned.