BUSINESSWEEK ONLINE : FEBRUARY 19, 2001 ISSUE
BUSINESSWEEK E.BIZ -- EUROPEAN COVER STORY ONLINE EXTRA: Q&A: Andre Kudelski: "Our Independence Is Our Strongest Force" The Swiss digital software maker tells how he transformed the company -- and prospered even after the loss of a big Canal+ deal Andrée Kudelski began developing software for a small Swiss pay-TV station at his father's tape-recording company back in 1984. In those days, the television signals were still analog and pay television was in its infancy. "We formed a small team of four people," he recalls. Today, the Kudelski Group has become a global leader in the fast-growing business of software that scrambles and decodes programs for digital TV. The company's market cap has reached a dizzying $7 billion, and 2000 sales are expected to rise more than 150%, to better than $210 million. Kudelski's software tells I-TV broadcasters which customers have ordered what programming and services, and then bills them accordingly. The Kudelski saga is also a family one: his father, Stefan, emigrated from Poland to Switzerland during World War II and, in 1959, created a compact reel-to-reel tape recorder, the Nagra, that revolutionized movies and television. Until Kudelski, soundmen were forced to lug around truckloads of equipment. By the end of the 1980s, however, giant Japanese electronics companies were on the verge of driving Kudelski out of business -- until son Andrée turned things around with his innovative ideas about software. The younger Kudelski spoke with BusinessWeek's William Echikson at his company's headquarters just outside of Lausanne: Q: How did your father come to Switzerland? A: In 1939, when the Germans invaded Poland, he fled to France. There he joined the Resistance, but his group was uncovered, and he had 24 hours to escape. So he came to Switzerland. Q: And how did he start the business? A: My father studied at the engineering school in Lausanne, but he was more an inventor than a student. He never finished the school. Instead, he had an idea, first for a sort of machine tool. Then he came up with the idea for a Nagra, a compact, transportable tape recorder. It really revolutionized radio, television, and film. Before, you couldn't tape on location. Q: How did the Nagra do commercially? A: It really began to take off in the '60s. We got an associate in the U.S. from Paramount films, and he did a fantastic job in Hollywood. We became a 400-person company selling about $18 million a year. But then the Japanese arrived. Their products became sufficiently good to replace the professional machine. We tried to adapt by doing a deal with the video-recorder maker Ampex to put our recorders on their machine. But the company still faced big problems. Our costs were high. The Swiss franc was too strong. We can't produce labor-intensive hardware here in Switzerland. I saw this -- and that's a reason I went into software. Q: How did you enter into the company? A: I graduated from the same school as my father. I studied applied physics. I then went to the U.S. I stayed a while working for Ampex. Then my father said: "Either you come home, or I will sell the company." I was the oldest son, so I came back. But I didn't see a future for a business built on tape recorders. Our production costs in Switzerland were too high. It was 1984. At the time, I heard about a local pay-television station that needed a decoder. I formed a small team of four people and went to work to create a solution. Q: What did your father think? A: My father didn't think it was a wise choice. But he let me go ahead because so little money was at stake. The company wasn't doing well, and we were lucky that my idea worked out. The software division soon became profitable. In 1991, the banks came to me and said that I should take over from my father. I was left with the dirty work. We were heavily indebted and money-losing. Q: What did you do? A: I restructured the company. We went from 400 to 220 employees, to 90 employees at the end of 1991. I trimmed the audio division and invested in the software one. And we soon turned things around. In 1992, we made about $1.6 million in profits. The big break came with our contract with Canal+. I met the CEO of the station, Andrée Rousselet, at a festival in Cannes. I left my business card and then called him again in Paris. We got the contract for 500,000 licenses, which ended up growing to 7 million. Q: But didn't Canal+ drop you as a supplier when it launched digital I-TV? A: Yes, and it was their biggest error. In 1995, they decided to develop their own digital technology. But it's hard for them to appear to be independent. We have grown faster than them, even without them as a client. Our independence is our strongest force. In fact, just as we were losing Canal+, we got an even bigger break. In 1995, we signed our first contract with America's EchoStar. I met their leaders in Amsterdam, at a trade fair. I didn't know who was the big boss. But then I saw one of the EchoStar people was dressed informally, in jeans. I remembered that my father also dressed informally. Sure enough, I was right, and we hit it off. Q: How fast can you expand the company now? A: We are accelerating. We cannot continue forever at 100%-plus. Last year, we signed lots of large contracts. But it's important not just to grow. We also must be profitable. What I particularly like is that we are gaining market share. Q: Have you thought about listing on Nasdaq? A: Why should we? There are so many great companies on Nasdaq. We would be one of many. In Switzerland, we are a blue chip. It is better to be a prince in a village than poor in a big town. Q: How do you compare doing business in Switzerland to doing business in Silicon Valley? A: It is more difficult to find the people in Silicon Valley than here. And costs are just as high. So, as long as you have high value-added products -- New Economy products -- Switzerland is fine. Q: Do you ever feel like the Bill Gates of Switzerland? A: I just hope to grow this company Q: What do you like to do in your free time? A: I love to ski. I also make wine. We have a small vineyard near my house where we produce about 600 bottles a year. It is white wine, with the Chasselet grape. Q: And what about the tape-recorder division? A: It doesn't take much of my management time. It still is a good public-relations asset. So we will not close it. But I see much greater opportunities elsewhere, particularly as the TV, PC, and mobile phone merge. We will play a key role in e-commerce over all these devices, making payments secure. We will look at alliances in the PC and mobile-phone worlds. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Europe's I-TV Advantage (int'l edition) TABLE: I Want My I-TV (int'l edition) ONLINE EXTRA: Q&A: BSkyB's Tony Ball: "We Will Compete with the PC Screen ONLINE EXTRA: Q&A: CanalSatellite's Bruno Delecour: "Our Digital Customers Spend Much More" I-TV's Software Upstart (int'l edition) ONLINE EXTRA: Q&A: Andre Kudelski: "Our Independence Is Our Strongest Force" Surfing by Boob Tube (int'l edition) ONLINE EXTRA: Q&A: Netgem's Joseph Haddad: "The TV Is a Simple Multimedia Device" INTERACT E-Mail to Business Week Online

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