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Company Perspectives:
The Kudelski Group offers its technological solutions across five continents, wherever security represents a key challenge in the field of interactive digital transactions. The Group is a leading player in access control systems and in secure management solutions for digital and analog television as well as in content security systems for broadband networks. Kudelski also develops integrated smart card-based solutions which can be used in all types of identification and authentication systems requiring a high degree of security. Renowned for their excellence among professionals and audiophiles throughout the world, the products of the Nagra Audio division demonstrate the Kudelski Group's commitment to its longstanding customers.
Switzerland's Kudelski Group SA is one of the world's leading independent companies specializing in so-called "conditional access" solutions for a growing number of applications, ranging from subscriber-based analog and digital television broadcasting to event ticket purchasing and facilities access, to secure smart-cards for online purchasing, interactive services, and health care services. The company also produces, through its original Nagra Audio subsidiary, professional recording equipment for the film and television, security and law enforcement, and other industries, as well as high-end high fidelity equipment for the audiophile community. The company's Nagravision, which produces access systems and software for digital and analog television set-top boxes, is Kudelski Group's largest division, representing 85 percent of the company's sales. The company has been building up its interactive services operations at the turn of the century, such as its Nagracard smart-card subsidiary; the Mediacrypt joint-venture formed with fellow Swiss company Ascom; 54 percent of SportAccess Kudelski, a specialist in "hands-free" ticketing and access systems; and others. Kudelski also operates two subsidiaries in partnership with two of its biggest customers: Nagrastar, in conjunction with the United States' Echostar; and Nagra+, in conjunction with France's Canal Plus. The company, trading on the Swiss stock exchange's blue chip index, is led by André Kudelski, son of founder Stefan Kudelski. The Kudelskis continues to maintain control of the company, holding 35 percent of shares and 64 percent of voting rights; French industrial group Dassault holds a seven percent share of the company's stock. In 2000, Kudelski posted revenues of nearly CHF 360 million ($223 million).
Pioneering Portable Recording in the 1950s
Until the 1950s, recording on location--whether for movies, television, or sporting events--was a difficult endeavor, in particular because of the large bulk and heavy power demands of then-current mobile recording systems. Physics student Stefan Kudelski, who had fled Poland after the Communist takeover, was to revolutionize mobile recording. While studying in Lausanne, at what later became known as the Swiss Federal Institute of Technology, Kudelski began working on a portable audio recording in his garage. Kudelski's first recorder was ready in 1951, a small, all-in-one unit with a wind-up motor for its power supply. Kudelski dubbed the recorder the Nagra and sold one to Radio Geneva, which was then taken on an expedition to Mount Everest. The first Nagra model also saw service in deep-sea dives led by Augustine Piccard. The French radio station Europe purchased a Nagra recorder for its field reporting.
Kudelski released an improved version, the Nagra II, in 1953. Two years later Kudelski added stereophonic recording capacity, and printed circuit boards for greater control of recordings. The recorder's breakthrough came in 1958, when Kudelski introduced the Nagra III. This model was the first to incorporate the new transistor technology. Adding electronic speed control, the Nagra III was capable of recording at quality levels comparable to the large truck-sized and room-sized systems still in use at the time, yet weighed only five kilograms. After adding instrumentation tape recording capability in 1959, the company's sales began to boom. An important moment in the Nagra--and Kudelski's--history came with the 1960 Summer Olympics games in Rome, when the Italian radio and television broadcaster RAI bought 100 Nagra III machines for the event. By then, Kudelski's production had reached nearly 500 machines per year.
Throughout the 1960s, Kudelski continued to improve its technology. A new Nagra model, the Nagra SN (for "Série Noire"), launched in 1960, was a breakthrough. About the size of a wallet, the SN version was to become widely used among law enforcement agencies as a so-called "body recorder." New technologies were added to the Nagra recordings, including the Neopilot syncronization system, the adoption of silicon transistors, and the incorporation of "sync" abilities in the filmmaking process. In 1964, Kudelski's growing sales enabled the company to leave its workshop and build a new production facility at Cheseaux-sur-Lausanne. This factory was ready in 1968; in that year, the company incorporated as a private limited liability company, Kudelski SA. The newly expanded facilities enabled the company to launch a new line of multi-track tape recorders. The addition of the new generation of tape recorders, capable of recording 16 and more audio tracks, was to produce something of a revolution in the recording industry in general.
Kudelski released several new models at the beginning of the 1970s, including the Nagra 4.2, specifically developed for the needs of the moviemaking community, launched in 1971; a stereo model launched the same year; and the Nagra SJ, developed especially for acoustic instruments. The company had also expanded its range of body recordings with the SNN, in 1970, and the SNS, which was low-speed version especially suitable for voice recordings.
In 1977, the company released its Nagrafax system for meteorological applications. That recording quickly became a standard feature on most sea-going vessels. In that same year, the company released a stereo version of its SN body recording, especially prized by law enforcement agencies. In that market, the company's customers included the FBI of the United States.
Recording Debt in the 1980s
By the early 1980s, Kudelski had succeeded in creating a worldwide reputation for the Nagra recorder. Yet the company was beginning to face competition from a new range of competitors, notably Sony Corporation and other Japanese companies, which flooded the world market with lower-priced products. By the middle of the 1980s, Kudelski was starting to struggle to keep up. Despite efforts to enter new territory, such as the launch of its first professional video recorders in 1984, Kudelski began to sink under the competition. Kudelski went public in 1986 in an effort to raise funding; by the end of the decade, however, Kudelski was mired in debt and facing financial collapse.
By then Kudelski's son André had joined the company. The younger Kudelski had completed his own studies at the Swiss Federal Institute of Technology, but had already shown his technological prowess in high school, when, with the help of two friends, he had built his own personal computer. André Kudelski had gone to work in California's Silicon Valley before returning to Switzerland and the troubled family business. The younger Kudelski was convinced that the family company's future lay in the development of specialized software. Yet convincing Stefan Kudelski of this proved more difficult. As André Kudelski told Forbes, "My father didn't think my ideas were very good."
Kudelski pressed ahead, however, and, soon after joining the company in 1986, received a contract from a Swiss subscriber-based television broadcaster to write billing software for its service. This software caught the attention of France's Canal Plus, which had launched its own encypted broadcasts that required dedicated set-top boxes to decode the broadcasting signal, in mid-decade. Canal Plus bought Kudelski's software for use with its set-top boxes in 1989.
In 1991, investor pressures forced Stefan Kudelski to step down from the company's lead. The company remained firmly in the family's hands, however, as André Kudelski now took over the company's direction. The younger Kudelski quickly set to work redirecting operations. While Kudelski maintained its founding Nagra Audio division, the company's future was oriented toward the growing market for conditional access systems and products.
The younger Kudelski's efforts had by then already begun to return the company to health. By 1991, more than a million set-top boxes incorporating Kudelski's access-control system had been sold. By 1995, Kudelski's software controlled more than seven million Canal Plus boxes. A joint-venture, Nagra+, sealed the two companies relationship--at least as far as Canal Plus's analog set-top boxes were concerned.
André Kudelski did not merely succeed in turning around the company, he transformed it into one of the world's leading supplier of conditional access systems, capturing a 34 percent market share by the end of the 1990s. The Kudelski company became one of the leaders of Switzerland's small high-technology sector, as its revenues and share price multiplied throughout the decade. By 2001, the company's stock traded at more than 125 times profits--a stunning performance especially in light of the general gloom that had fallen over the high-technology sector during the same period.
21st-Century Interactive Access Specialist
The company's earliest products--both in audio and in television access systems--had been directed toward the analog market. In the early 1990s, Kudelski was quick to begin adapting its products to emerging digital technologies. This included the release of the Nagra-D, in 1992, the company's first digital recorder. Kudelski also began developing conditional access systems for digital broadcasting. While still in its embryonic stages in the early 1990s, digital television showed huge potential--not only in its ability to offer higher-quality image and sound than analog television, but also in its ability to open up new interactive capabilities.
At mid-decade, however, Kudelski stumbled over a new hurdle, when Canal Plus chose to implement its own software system, developed in-house, for its rollout of digital television services. With one of its main customers turned competitor, and the rest of the European market for digital television still in its infancy, Kudelski quickly changed direction, taking its digital technology, dubbed Nagravision, to the United States. In 1995, the company received an order for Nagravision from Echostar, which quickly established North America as the company's primary market. More than 85 percent of sales were now generated in that continent.
Nagravision was well greeted by the industry, which ranked Kudelski's software at the top of the industry. The company received further confirmation of its excellence when it was awarded a special Emmy award for its contribution to the development of digital television. The recognition of Nagravision brought it to the attention of other broadcasters, which helped the company build its market share throughout the rest of the decade. In the meantime, Kudelski continued to innovate in its former core division, launching a number of new Nagra models, including the ARES-C, a portable, solid-state digital recorder. The company's continued development of the Nagra D, including the implementation of 24-bit, 96-Khz functionality, led the company to receive new accolades, such as an Academy Award for the film The English Patient, recorded entirely on a Nagra D. The success of the division led Kudelski to take Nagra into the home for the first time, with the launch of a range of extreme high-fidelity components targeting the audiophile market.
The breakthrough of Nagravision in Europe in 1997, however, firmly placed the company's future growth on the rapidly expanding digital television market. The following year, the company entered the U.K. market, adapting its access technology to the cable television market. In that year, the company created its NagraStar joint-venture with main customer Echostar, and also launched its new dedicated smart card subsidiary, NagraCard.
In 1999, the company spotted a new opportunity, with the rise of broadband network systems offering high-speed transmission of a variety of digital content, from music to video. In that year, the company launched the first encryption system for broadband network. At the same time, Kudelski launched a joint-venture, MediaCrypt, in partnership with fellow Swiss company Ascom, using that company's IDEA algorithm for secure digital television and Internet transmission, a market expected to grow exponentially in the initial years of the new century. Another joint venture formed in 1999 was Nagra ID, which, together with partner Thermoplex F. Droz of Switzerland, began producing new generation smart card systems.
The diversification of Kudelski's activities at the end of the decade led the company to reform as a holding company, Kudelski Group. In 2000, the company's strong performance over the past decade was acknowledged with the company's admission onto the Swiss stock exchange's blue-chip SMI index.
In 2001, Kudelski faced a new challenge on the digital television front, when Rupert Murdoch's News Corp. began attempting a takeover of DirectTV--which already used encryption technology made by rival--and News Corp. subsidiary--NDS. Echostar launched a counter-offer for DirectTV, which was backed by an offer for $1 billion in cash from Kudelski itself. That sum, worth approximately one-fifth of Kudelski's paper value, raised eyebrows in the financial community. Yet a possible takeover of DirectTV by News Corp. would end Kudelski's hopes of imposing its software over that of NDS, which had gained a 36 percent share of the worldwide market.
In this light, Kudelski's moves to diversify at the turn of the century were greeted warmly, as the company positioned itself as a more broadly based provider of "conditional access" systems. An important component of Kudelski's new strategy came in 2000 with the acquisition of a majority stake in Sports Access, a Swiss-based ticketing systems provider, as well as a majority share of Polirights, which provided e-voting and cyber-administration services. In 2001, the company's acquisitions continued, with the purchase of digital decoder software developer LiveWire; the acquisition of TicketCorner, which was added to Sports Access; the acquisition of Lysis, adding that company's interactive digital television software; and SkiData, which produced software for ski and other facilities access. While the bulk of Kudelski's revenues continued to come from its digital television-based products, its diversification helped to position to the company as a leading independent supplier of next-generation purchasing, ticketing, and access systems.
Principal Subsidiaries: Kudelski SA; Nagracard SA; Nagravision SA; Précel SA; Sportaccess Kudelski SA; (54%); Polirights Political Rights SA (66%); E-Prica SA (50%); Nagrastar Llc (50%); Nagra+ (50%); Mediacrypt Ag (50%); Nagra Id SA (50%); Nagra Kudelski (Gb) Ltd.; Nagra Kudelski Gmbh (Germany); Nagra Italia Srl; Nagra USA Inc.; Nagra France Sàrl; Nagravision North America (USA); Nagravision Brazil; Nagravision Iberica (Spain); Nagravision India; Nagravision China; Nagravision Asia/Pacific (Singapore).
Principal Competitors: ADC Telecommunications, Inc.; Avid Technology, Inc.; CANAL+; DIRECTV, Inc.; Gemplus International SA; Harman International Industries, Inc.; NDS Group plc; OpenTV Corporation.
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