Digital TV
Leadership in an expanding market
The transition from analog to digital in the television industry continues apace, especially in the cable sector, and will accelerate over the next five years.
The Kudelski Group is thus operating in an expanding market, especially as television finds new ways of dissemination through the process of digital convergence and remains one of the most widespread entertainment activities in the world.
An early player in this market, the Group now holds a leading position with content security solutions that have extended to adjacent sectors over the years to address the increasingly complex needs of operators and the expectations of end users.
Group revenues multiplied by 50 in less than 20 years
From niche to mass markets
Strategically, the Kudelski Group anticipated several years ago the effects of digital convergence, which now enables the same content to be distributed to and consumed on multiple terminals such as television, PC and various mobile devices. This evolution allowed the company to continually push back the boundaries of its business, which originally consisted of securing access to pay-TV programs. Today, the technologies of the Group are diversifying wherever video or multimedia content requiring security is broadcast, whatever the distribution channel - satellite, terrestrial, cable, Internet or telecommunications.
Television consumption is diversifying rapidly, moving from the living room to all kinds of mobile receivers. The Kudelski Group's success in the field of mobile TV illustrates how the company is entering the new mass markets. Resulting from the Group's research in 2004, the mobile TV solutions were introduced on the Italian market, in many respects recognized as avant-garde. In 2008, they were deployed in several other countries, including China, where the 2008 Olympics provided the opportunity to launch the concept on a large scale. Today, the Group has become the world leader in this field.
Still in their initial phase and yet to reach break-even point, mobile TV solutions have real development potential. With other new sectors - SmarDTV's conditional access modules, IPTV, advanced features, graphic user interfaces - they already account for a significant part of Digital TV revenues and are an important growth driver for the firm in the medium and long term. An evolving product range
The Kudelski Group's increasing role with operators also contributes to the firm's expansion. From a specialized provider of access control systems, the Group has become a global and multidisciplinary partner. It now offers integrated end-to-end solutions that can adjust to the operators' existing platforms and that can be deployed over any distribution mode.
Kudelski solutions are used to organize content, enhance and manage it and provide attractive and user-friendly interfaces for the end user. In this context, the acquisition of a controlling stake in the Californian company OpenTV in 2007 was a strategic move, bringing the Group new skills and market presence in the field of interactivity and new forms of advertising. The company is now present on the entire digital TV ecosystem.
Thanks to the variety of its solutions, the Kudelski Group is positioned as a preferred partner enabling operators to improve their services to subscribers, introduce new applications, increase ARPU (Average Revenue Per User) and reduce the investment cost per customer. The Group aims to continuously increase the value of the relationship between the operator and the subscriber. Therefore, the notion of service is clearly a natural axis of development for the Group in the years to come.
Migration to service mode completed
In 2003, the Kudelski Group decided to gradually change the business model used with its moststrategic clients from a sale to a service mode. As a result, relations between the Group and its customers moved towards a real partnership.
The new business model enables operators to acquire and operate Kudelski's conditional access systems on the basis of a fee determined by the number of smartcards/modules in use by the operator. It reduces the operators' capital needs when acquiring new subscribers and includes maintenance and periodic smartcard replacement costs.
For the Kudelski Group, the service mode has the long-term advantage of generating a more stable revenue stream, being less dependent on the one-off sale of new systems and less subject to the vagaries of the economy. In addition, this mode is particularly suitable for mature markets. However, the new model required major investments and led to a momentary loss of income during the migration period. At the end of 2008, some 25 million cards had been migrated. The process was completed in February 2009 with a further 5 million cards transferred. Therefore, the full effects of this migration will be felt from 2010 when the conditions for profitability are met.
Strategically, this business model has the advantage of aligning the interests of operators with those of the Kudelski Group. While supporting the technological risks, the Kudelski Group keeps control of the technology and the introduction of new generations of products. If product lifetime is extended, both the Group and the operator reap the benefits.
A More diversified customer and income base
Through its increasingly comprehensive digital TV solutions and its range of products targeting new industry sectors, the Kudelski Group is extending its business development opportunities by addressing mass markets. This allows it to significantly expand its customer base and strengthen its position on all five continents.
The company's revenue sources are now much more diversified than a few years ago. With the introduction of the service model, this contributes to steadier revenue streams and better risk distribution.
In the Group's traditional activity sector, customers gained during 2008 are mainly based in Asia and Europe, but also in America. Significantly, many of these operators have opted for multi-solution systems including for example conditional access, IPTV and OpenTV's middleware and interactive advertising solution.
In the new sectors, client wins include telcos with renowned companies such as Vodafone Italy, Telecom Italia Mobile, Telefónica, and China Satellite Mobile Broadcast.
The company's revenue sources are now much more diversified than a few years ago. With the introduction of the service mode, this contributes to more robust revenues and better risk distribution
Third-generation security
Security remains at the heart of the Kudelski Group's missions and remains a strategic issue, especially in new sectors. With the proliferation of transmission channels and the diversity of consumer devices, security is becoming an increasingly important component therefore requiring specific developments.
The company is allocating very substantial resources in this area so as to always deliver the moststate-of-the-art technologies and counter piracy activities. A significant share of the R&D budget - which represented more than 220 million francs in 2008 - is devoted to this aspect. Fundamentally, the Kudelski Group is committed to combating piracy and is deploying appropriate measures at both the technological, operational and legal levels. This is essential to protect the vital interests of its clients and their revenues.
The conditional access systems supplied since the second half of 2007 and the smartcards associated with them have third generation technology based on a diversified and segmented approach to security. Security is diversified in time and space making it difficult for hackers because of modifications in the encryption model. In this new concept, anti-piracy and monitoring activities form an integral part of the security strategy.
The Kudelski Group is engaged in an active and fundamental fight against television piracy. As part of this effort, it is prosecuting companies and individuals who are involved in piracy activities as well as those who develop infrastructures designed to facilitate such activities. Through these actions, the Kudelski Group aims at extending the lifespan of the solutions used by its clients by reducing the economic attractiveness of large-scale industrial piracy in the long term. These actions complement the significant development of new security technologies.
The technologies developed for conditional access systems have a direct impact on all the solutions proposed by the Group in the new business areas. Therefore, they represent a significant competitive advantage in winning new customers and new markets.
structures evolving in response to new challenges
Market dynamics and the sustained and continued growth of the Kudelski Group require periodic rethinking of the structure of the company, especially since it addresses a global market.
In 2008, the Group reviewed its Digital TV organization and strengthened its top management team.
The new structure is designed to address new operators' needs and respond to increasingly complex challenges. It is based on two core values to ensure the future success of the Group, creativity and rapidity.