Premiere cuts year-end forecasts

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COLOGNE, Germany -- German pay TV group Premiere has reduced year-end forecasts following a weak second quarter but, buoyed by its recent soccer-rights deal with competitor Arena, is predicting strong growth in 2008.

The Munich-based broadcaster trimmed second-quarter losses, booking a net loss of €32.6 million ($45 million), compared with a massive €138.8 million loss in the second quarter of 2006. Revenue, however, was down 15% to €229.1 million ($315.5 million).

As a result, Premiere now says it expects to earn €1.04 billion-€1.05 billion ($1.43 billion-$1.45 billion) this year, down from the €1.05 billion-€1.1 billion initially forecast. Premiere has reduced its operating profit (EBITDA) forecast for 2007 as well, targeting an EBITDA of €80 million-€100 million ($110 million-$138 million), below the original forecast of €120 million-€140 million for the full year.

Premiere CEO Georg Kofler blamed the second-quarter drop on uncertainty surrounding the Arena deal. German regulatory authorities blocked the initial agreement between the two companies, which would have seen Premiere and Arena jointly market German Bundesliga soccer matches on their respective satellite services.

"The ban on marketing Arena via satellite meant, of course, that substantial revenue potential (in the second quarter) could not be achieved," Kofler said in a statement.

In a ruling Wednesday, the German cartel office approved an altered version of the deal. Arena will be allowed to sublicense Bundesliga rights to Premiere but the companies can not cooperate in marketing the games (HR 7/18).

Kofler said Thursday that Premiere will pay Arena "around €100 million ($138 million) per season for the Bundesliga. In addition, Arena's parent company, Unity Media, will take a 16.7% stake in Premiere. Arena originally bought the rights for €220 million a season.

"It's a smart deal," Kofler said, adding that, in addition to rights to the first and second division Bundesliga, the Arena deal includes German pay TV rights for the Spanish Primera Division and England's Premier League. Arena also will hand Premiere the licenses to air matches at sport bars across the country.

Fueled by the Bundesliga, Kofler is predicting major growth for Premiere.

By year's end, he expects to add 1 million subscribers, bringing Premiere's total to 4.4 million, of which some 700,000 will receive Premiere's Bundesliga service via Arena.

In a separate deal, Premiere extended its cable distribution deal with Arena, ensuring Premiere's pay TV platform will be carried on Arena's cable networks through 2013.

In 2008, Kofler is forecasting 4.8 million subscribers, revenue of €1.2 billion ($1.7 billion) and an EBITDA of €180 million-€200 million ($248 million-$275 million).

Analysts seem to agree with Kofler's rosy predictions. Sven Krupp of AC Research has put out a buy recommendation for Premiere stock.

"With this (the Arena agreement), Premiere is essentially where it was before it lost the Bundesliga rights (in December 2005), Krupp said. "Only that then Premiere stock was around €24, it is currently trading below €20."

German bank WestLB also boosted its rating for Premiere from "reduce" to "add." The bank increased its target price for Premiere shares from €15.5 to €22.

Day traders Thursday differed with that assessment. Profit taking in Frankfurt sent Premiere shares down 4.6% by midday to €18.95 ($26.1).
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