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3rd quarter 2006: Premiere back in the black
• 3.374 million subscribers on September 30, 2006:
decrease of only 2 per cent (68,568) compared with Q2 2006
• Robust business model: revenues stable at EUR 269.5 million
• Operating costs drop 19 per cent to EUR 236.4 million
• Turnaround in earnings:
– EBITDA improves by EUR 54.9 million compared with Q2 2006
to reach EUR 33.1 million
– Net income of EUR 5.4 million
• Kofler: “Encouraging development in 3rd quarter, turnaround started”
Forecast 2006:
• Net growth of subscriber numbers in 4th quarter:
approximately 3.4 million subscribers at year end
• Revenues between EUR 1.05 billion and EUR 1.1 billion
• EBITDA between EUR 40 million and EUR 50 million
Outlook 2007:
• Between 3.5 and 3.6 million subscribers at year end
• Revenues between EUR 1.05 billion and EUR 1.1 billion
• EBITDA between EUR 120 million and EUR 140 million
Munich, November 7, 2006. Premiere returned to profitability in the 3rd quarter 2006. Compared with the 2nd quarter 2006, Premiere improved EBITDA (earnings before interest, taxes, depreciation and amortization) by EUR 54.9 million to EUR 33.1 million (Q2 2006: negative EUR 21.8 million). After depreciation and amortization (EBIT), Premiere achieved a result of EUR 13.5 million (Q2 2006: negative EUR 43.7 million). On the bottom line too, the result was back in the positive with net earnings of EUR 5.4 million (Q2 2006: negative EUR 138.8 million). Earnings per share rose to EUR 0.07 (Q2 2006: negative EUR 1.69).
In the 3rd quarter 2006, Premiere for the first time had to market its programming packages without own soccer Bundesliga rights. Despite this major change, Premiere was able to hold revenues steady at EUR 269.5 million (Q2 2006: EUR 269.3 million). Even compared with last year’s 3rd quarter figure, when Premiere still held the exclusive pay-TV rights to the soccer Bundesliga, Premiere only posted a slight decline in revenues of 1.1 per cent.
The main factor causing the improvement in earnings compared with the 2nd quarter 2006 was reduced costs. Operating costs decreased by 18.8 per cent, or EUR 54.7 million, to EUR 236.4 million (Q2 2006: EUR 291.1 million).
On September 30, 2006 Premiere reports 3,373,932 subscribers – 68,568 or 2.0 per cent less than on June 30, 2006 (3,442,500). In a year-on-year comparison (on September, 30) Premiere recorded a decrease of 35,581 subscribers (Q3 2005: 3,409,513) or 1.0 per cent.
Kofler: “Premiere’s business model proven to be robust – new pricing and packages positive for subscriber retention and acquisition”
Dr. Georg Kofler, CEO Premiere AG: “Business and results for the 3rd quarter 2006 are encouraging for Premiere. Premiere is back in the black. The wave of churn many observers expected to hit Premiere did not happen, but quite the opposite: Premiere’s business model with its comprehensive range of programming has proved to be robust. Premiere is still by far the leading brand in German pay-TV. The new pricing and packages Premiere introduced as of August 1 also have had a positive effect on subscriber retention and acquisition. Following the expected difficult first half year of 2006, the Premiere engine is once again on its way to running smoothly.”
Revenues stable at EUR 269.5 million
In the 3rd quarter 2006, Premiere generated revenues of EUR 269.5 million (Q2 2006: EUR 269.3 million), thereby reaching the same level as the 2nd quarter. Revenues from program subscriptions decreased by 8.0 per cent to EUR 216.2 million (EUR 234.9 million). By contrast, hardware revenues increased by EUR 15.6 million, reaching EUR 26.6 million (EUR 11.1 million), boosted by HDTV and hard-disk receiver rentals and sales. Other revenues rose to EUR 9.2 million (EUR 3.3 million).
Even compared with last year’s 3rd quarter figure, when Premiere still held the exclusive live pay-TV rights to the soccer Bundesliga, Premiere only recorded a slight decline in revenues – amounting to approximately EUR 3 million or 1.1 per cent.
Operating costs reduced by 19 per cent
Operating costs in the 3rd quarter dropped by EUR 54.7 million to EUR 236.4 million (Q2 2006: EUR 291.1 million) – representing a decrease of 18.8 per cent. The biggest cost reductions were in programming. Here, costs in comparison to the 2nd quarter were reduced by 33.4 per cent to EUR 128.5 million (EUR 193.1 million). The savings were largely due to the discontinuation of the direct license payments for the soccer Bundesliga broadcasts. Also affecting the quarterly comparison were the one-time expenses in Q2 2006 to the sum of EUR 35 million for the broadcasting of the FIFA World Cup.
In transmission and technology, costs remained almost unchanged at EUR 25.3 million (Q2 2006: EUR 24.7 million). The cooperation agreement with arena for the broadcasting of the soccer Bundesliga and the introduction of the new pricing and packages increased subscribers’ need for information. As a consequence, costs for customer management increased to EUR 23.2 million (EUR 18.3 million). With leaner sales structures and targeted advertising campaigns, Premiere cut marketing and sales costs down to EUR 25.9 million (EUR 32.8 million).
Hardware expenditure increased to EUR 31.4 million (Q2 2006: EUR 19.0 million), among other factors due to the purchase of high-quality HDTV receivers and Premiere digital recorders. General administrative costs dropped to EUR 14.4 million (EUR 17.6 million). Depreciation on operating assets was at EUR 7.6 million (EUR 9.8 million). Scheduled amortization of subscribers was EUR 12.1 million, as in the previous quarter.
Positive first results in important milestones
• New pricing and packages improve subscriber satisfaction
• Successful launch of free-to-air TV format “Champions TV”
• Pay-per-view live streaming offers strengthen www.premiere.de
Premiere introduced new pricing and packages on August 1, marked by lower entry prices and more flexible combination options. Kofler: “So far, our experience with the new pricing model has been positive indeed. Around 100,000 customers that had already churned got back in touch with us because of the new packages and proactively reversed their subscription cancellation on their own initiative. The new packages are well regarded as better value for money by both existing and new subscribers. It is especially satisfying that two thirds of the customers who subscribed to one of the new packages have opted for a 24-month contract. The longer contract terms increase the stability and value of Premiere’s subscriber base.”
Subscriber behavior in selecting the programming packages has not changed significantly since the new packages were introduced. The proportion of top end packages (five-packages or more) at 38 per cent is only slightly below the previous quarter’s figure of 41 per cent. The first trends also show that Premiere is managing to attract new target groups in the EUR 10 to EUR 20 price range with its EUR 9.99 campaign.
Additional exclusivity in the UEFA Champions League has had a positive effect on the awareness of the Premiere brand and offerings. Since the beginning of the current soccer season, Premiere is, for the first time, responsible for the selection and production of the free-to-air TV coverage of the most important international soccer championship alongside its live coverage on pay-TV. In the first four weeks of the championship, Premiere has managed to achieve a healthy balance between an exclusive pay-TV offering and an attractive free-TV offering. Following the introduction of the new packages, PREMIERE FUSSBALL has established itself as the best selling Premiere package in August and September. On top of that, every game of the new free-to-air TV format “Champions TV” attracted almost four million viewers. “Champions TV” is a new revenue stream for Premiere’s advertising sales and a showcase for the work of Premiere’s sports team and the pay-TV packages on offer.
“Champions TV” has proven to be an effective vehicle in promoting the new pay-per-view streaming offers on www.premiere.de. Since the start of the new season Premiere has also been broadcasting all individual games and the Premiere conference link-up of the UEFA Champions League live on the web. Cross promotion for the coverage of the Champions League has led to a surge in awareness of the new live streaming offers and the Premiere website. Up to 200,000 users visited www.premiere.de during a “Champions TV” show to get information on Premiere, to order a pay per view live stream or to take out a pay-TV subscription. Within the space of a few weeks, Premiere was able to put the new pay-per-view offering via Internet onto the map for the soccer fan target group, thereby opening up opportunities for new revenue potential.
Promising innovations with potential
• Premiere HDTV subs now offered from just EUR 9.99 a month
• IPTV: establishing market presence
Premiere is expecting additional potential from its relaunched HDTV offering. From November 13, Premiere will offer both its HDTV channels – PREMIERE HD and DISCOVERY HD – as stand-alone packages from EUR 9.99 per month. This considerably lowers the entry threshold for those interested in HD: until now, the HDTV offering was only available in combination with the 5-pack, from EUR 44.99 per month. Kofler: “Our new HD offering makes the entry into high-definition television better value and simpler in time for the Christmas season. Premiere HD in combination with the new HD-ready flat screens provides a substantially enhanced television experience. We expect this to drive subscriber numbers as well as sales of Premiere HD receivers, which also bring all the other digital programming to the screen in outstanding quality, not just the HD channels.”
The market presence of Premiere’s new IPTV offering will also increase in the coming weeks. Deutsche Telekom recently began to advertise its new triple-play offering, T-Home, which broadcasts television via the new VDSL high-speed network. Alongside cable and satellite, VDSL will become Premiere’s third distribution channel for German television households. T-Home features Premiere’s entire programming range and all games of the 1st and 2nd division of the Bundesliga. Premiere holds the exclusive rights for live broadcasts of the Bundesliga via VDSL up to mid 2009. Kofler: “Bundesliga live in the accustomed Premiere quality is an attractive argument for IPTV and T-Home. The live broadcast of three Bundesliga games per weekend – one each Friday, Saturday and Sunday – in HDTV format is unique. We firmly believe in the future of IPTV because it combines the advantages of traditional television with interactive, more personalized user options. This also makes Premiere’s pay-TV offering interesting for new target groups.” Premiere expects between 50,000 to 100,000 subscribers via IPTV by the end of 2007.
Focusing the organizational structure:
Premiere Content, Premiere Platform, Premiere Interactive
In anticipation of future competition, Premiere is introducing a clear and even more focused structure. Operations are bundled in three strategic business divisions: ‘Premiere Content’, ‘Premiere Platform’ and ‘Premiere Interactive’.
Premiere Content is responsible for the acquisition, editorial and production of programming – from single formats to complete channels. Premiere Platform focuses on customer relationships, marketing, service, logistics and technical services. The role of Premiere Interactive is to develop new business models based on interactivity and transactions. These include innovative Internet and TV offerings – such as live streams and video-on-demand. Premiere Interactive also produces customized contents for new distribution channels, e.g. mobile services and web portals.
Each business division will in future offer its portfolio of services to third parties as well. Premiere Content will thus also offer pay-TV programming to other platforms and distribution systems, and on request, develop them to meet specific needs. First example: the Premiere range on T-Home’s IPTV platform. Premiere Platform will also market the content of other programming providers. Prime example: Premiere has become the biggest marketer of arena.
Kofler: “With this new structure, we have defined Premiere’s assets and competences even more clearly. The highly market-oriented structure of the divisions enables Premiere to better utilize its potential. Alongside Premiere’s own consumer business, Premiere is positioning itself as a full-service provider for other players in the TV and IPTV industry. It increases our purchasing power and means we can use our resources even more effectively. In a second phase, the newly structured business divisions could become the seed of new business partnerships.”
Forecast 2006:
• Net growth of subscribers in 4th quarter:
around 3.4 million subscribers at year end
• Revenues between EUR 1.05 billion and EUR 1.1 billion
• EBITDA between EUR 40 million and EUR 50 million
Following the decline in subscriber numbers in the first three quarters, Premiere is expecting net growth of the subscriber base in the 4th quarter 2006. By the end of 2006, Premiere anticipates approximately 3.4 million subscribers. Kofler: “The largest part of the churn caused by the loss of the Bundesliga rights is now behind us. There are clear signs that the churn trend will continue to normalize in the 4th quarter. We are expecting the new pricing and packaging and the lower-priced HDTV starter offer to drive new business. Judging by our experience, films, documentaries and family programming, and not the Bundesliga, are the decisive factors for Christmas sales. In these programming areas, Premiere is still uniquely positioned in comparison to its competitors.”
For 2006 overall, Premiere anticipates revenues of between EUR 1.05 billion and EUR 1.1 billion. EBITDA is expected to be between EUR 40 million and EUR 50 million.
Outlook 2007:
• Between 3.5 and 3.6 million subscribers by year end
• Revenues between EUR 1.05 billion and EUR 1.1 billion
• EBITDA between EUR 120 million and EUR 140 million
For 2007, Premiere is anticipating further growth in subscriber numbers. By the end of 2007, the subscriber base is expected to increase to between 3.5 and 3.6 million. Revenues of between EUR 1.05 billion and EUR 1.1 billion are anticipated. Due to decreasing costs, Premiere forecasts a substantial improvement in the 2007 operating result. EBITDA is expected to range between EUR 120 million and EUR 140 million.
For inquiries, please contact:
Dirk Heerdegen
Vice President Marketing and Corporate Communications
Tel: +49 89/99 58-63 50
dirk.heerdegen@premiere.de
Shane Naughton
Deputy CFO
Vice President Investor Relations
Tel: +49 89/99 58-11 00
shane.naughton@premiere.de
Stefan Vollmer
Head of Financial and Business Communications
Tel: +49 89/99 58-63 77
stefan.vollmer@premiere.de
Christine Scheil
Director Investor Relations
Tel: +49 89/99 58-10 10
christine.scheil@premiere.de
This press release contains forward-looking statements based on the currently held beliefs and assumptions of the management of Premiere AG, which are expressed in good faith and, in their opinion, reasonable. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, financial condition, performance or achievements of Premiere AG or media industry results to differ materially from the results, financial condition, performance or achievements expressed or implied by such forward-looking statements. Given these risks, uncertainties and other factors, recipients of this document are cautioned not to place undue reliance on these forward-looking statements. Premiere AG disclaims any obligation to update these forward-looking statements to reflect future events or developments.
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