iesy Repository GmbH - Irish Stock Exchange

television industry and GEMA (representing collecting societies), public broadcasters, and a few German and foreign private
broadcasters in television and radio. This contract is scheduled to terminate on December 31, 2006.
iesy also pays royalties to VG Media pursuant to a collective agreement between iesy, ish, the other Level 3 operators
and VG Media (representing the majority of private broadcasters). This agreement came into force on January 1, 2003 and
may be terminated by each party on December 31, 2005, at the earliest. On March 22, 2005, as part of settling arbitration
proceedings, iesy became a party to this agreement. As a result, iesy’s accruals increased and a payment was made to cover
the periods from January 1, 2003.
Total copyright fees paid by iesy under the GEMA and VG Media agreements in the three months ended March 31,
2005 amounted to €1.5 million, and in the year ended December 31, 2004 amounted to €5.6 million.
Some collecting societies represented by ARGE Kabel have claimed additional royalty payments from iesy. See “Risk
Factors—Risks Relating to Our Business—Uncertainties as to copyright laws may adversely affect our ability to conduct our
business” and “Business—Business of iesy—Legal Proceedings.”
Costs Relating to Premium Cable Television Programming
iesy currently delivers its foreign language program packages and Premiere’s program packages and encryption data
for smart cards through MSG’s digital playout facility. iesy is obliged under its service agreement with MSG to pay its share
of the costs associated with the facility’s operation. MSG allocates these costs based on digitally reachable subscriber
numbers among iesy, Kabel BW, ish and KDG. While MSG must substantiate those costs to iesy, iesy has no control over the
costs of operating the facility or the amount that MSG deems to be iesy’s allocable share of such costs. iesy had disputes with
MSG as to past billings related to the provision of digital playout services from 2001 to 2004. In January 2004, a settlement
was reached covering the period from 2001 to 2003. A settlement covering 2004 was reached in August 2004. iesy incurred
expenses of €1.2 million for services provided by MSG in the year ended December 31, 2004. These costs do not include
€0.4 million related to the usage of the digital channels S26 and S38. In the third quarter of 2004 iesy decided to capitalize
the costs relating to these channels for the remaining period of time. iesy incurred expenses of €0.3 million for services
provided by MSG in the three months ended March 31, 2005. See “Risk Factors—Risks Relating to Our Business—We rely
on MSG, a subsidiary of KDG, for the provision of certain playout services and because of changes in our relationship with
MSG, our premium cable television services could be disrupted or may lead to higher costs. Existing contracts of MSG with
third parties, especially Premiere, as well as our current agreements with MSG, could adversely affect the development of our
digital strategy,” “Business—Business of iesy—Products and Services—Basic cable television—iesy’s basic cable carriage
fees.”
In addition, iesy licenses the programs for iesy’s foreign language television offerings from Mediapool, a program
provider who acquires content on iesy’s behalf, for a monthly fee that varies per program per subscriber. The current term of
iesy’s contract with Mediapool has been extended through 2009. With regard to iesy tv USA-UK, iesy has concluded
agreements directly with broadcasters to procure content. These agreements provide for fees based upon the total number of
subscribers to the package and in the case of a few broadcasters have some relatively low minimum guarantees. iesy’s
programming costs may increase in the future with an expansion of our premium cable television services. See “Risk
Factors—Risks Relating to Our Business—We do not have guaranteed access to programs and are dependent on agreements
with third parties for our content and carriage fees, which may adversely affect our business” and “Business—Business of
iesy—Products and Services—Premium cable television—iesy’s programming content and payments.”
Rental and Leasing Fees
iesy leases all its offices, including its headquarters, and lease service vehicles and automobiles for certain employees.
Total rent and lease payments recorded were €1.0 million for the three months ended March 31, 2005, and €3.8 million for
the year ended December 31, 2004.
Sales and Marketing Expenses
iesy pays sales commissions for the sale of subscriptions to its products. Sales commissions were €0.7 million for the
three months ended March 31, 2005, and €2.7 million for the year ended December 31, 2004. Marketing expenses for the
three months ended March 31, 2005 were €0.3 million, and for the year ended December 31, 2004 were €1.7 million. iesy
expects its marketing costs to significantly increase as iesy extends its marketing activities, and particularly as iesy expands
its premium cable television and high speed Internet services.
84