Cord cutting hits Kudelski results; Nagra delays Project Radar

Record subscriber declines wreaked havoc on the pay TV landscape throughout the first half of 2019 and one vendor visibly feeling the effects of these reverberations is the Kudelski Group, as the digital security specialist chugs along with the rejigging of its legacy digital TV division.

With digital TV revenues on the decline, down by 12% to $190.5 million for the first six months of this year, the company has sought to merge its conditional access and user experience product units into a consolidated DTV Product Unit – aiming to deliver a “more consistent and complete” offer to the market.

Ironically, Kudelski last month published its latest Pay TV Innovation Forum report, in which just 26% of executives polled believe that the growth of paid OTT services will have a negative impact on the pay TV industry over the next five years. In other words, one quarter of pay TV operators are prepared to adapt and the other three quarters are prepared to stand back and watch their businesses churn out huge fractions of their pay TV footprints over the next five years. For many of the 74%, the damage has already been done.

Clearly these very pay TV executives are oblivious to the wider ramifications of changing viewing habits on the company behind the survey – directly causing Kudelski to reduce its total group headcount by 182 employees during the first half of 2019.

Damage was worst in the Americas, with the digital TV segment posting 23.6% lower revenues in the first half of 2019 to $70.7 million. Kudelski said the main factor was a decline in the IP licensing business, generating zero revenue in the period which is surely a major concern. European digital TV revenues slipped 6.4%, bringing total digital TV revenues to a decline of 14.5% to $190.5 million for the six-month period. Digital TV operating income came in at $53.6 million, a $1.6 million year on year improvement, thanks to maintaining a high margin after cost of materials of close to 90%.

Costs associated with digital TV restructuring totaled $13.7 million, a significant reduction from the $29.9 million incurred in the first half of 2018.

Meanwhile, the lower margin Public Access business also struggled, reporting revenue down 2.3%, while the Cybersecurity sector slipped 3.3%. The fledgling IoT business onboarded an initial portfolio of customers to generate early revenues of $1.2 million, although on an operating loss of $11.5 million. Kudelski posted total net loss of $20.4 million in H1 2019, compared to $38 million in the prior year period.

While not enough to offset the knock on effects of cord cutting, one digital TV silver lining for Kudelski arrived via an extension deal at European powerhouse Vodafone, deploying the vendor’s Security Solution Platform to support set tops as well as open devices – including the cloud-based Nagra Device Authentication Services. Over in the US, Altice USA upgraded to the broadcast content protection product Nagra Protect – strengthening its position at the cable TV provider.

While Kudelski’s approach to changing its stripes appears rather straightforward on the surface, concentrating largely on cloud and IP connectivity, we’d like to circle back to a rather strange move we spotted in October last year involving the signing of a patent license agreement with talent scouting agency Endeavor. We noted at the time how the very vague announcement implied a change in business model for the Swiss firm – although any fruits from this venture are presumably too small to bear influence on financial results just yet.

Outside the US and Europe, Nagra was tapped by Indonesian cable TV operator PT LinkNet in April, selecting the Protect cardless content protection technology to shore up its new hybrid broadcast and Android TV-based OTT service. As a long-term supplier to PT LinkNet, Nagra will enable the delivery of services to any screen in the transition away from card-based systems, while promising unprecedented security for a software-based product – using either Nagra on-chip security (NOCS) or chipset Trusted Execution Environments (TEEs).

Unfortunately, we learned this week that Nagra has pushed back the unveiling of a new product which was due to launch at IBC, codenamed Project Radar (subject to change). At a recent Montreux media gathering event, Nagra teased only that the technology is about addressing scalable service protection – mapping how well an operator is performing against competitors and highlighting particular areas of vulnerability, as one example.

Now it seems Project Radar won’t arrive in time to play a pivotal part in Kudelski’s assurance that digital TV revenues will be higher in the second half of 2019 – or perhaps the technology be geared towards cybersecurity or IoT angles. For the sake of future recovery, Nagra will be hoping that the new venture doesn’t – erm – slip further under the radar.