Both. First you have to remember that the position of Pope during this time was head of the Church and head of the Papal States. Popes during this time were key players in European politics (look no further than Alexander VI some 20 years earlier), even in purely secular matters, so protecting the position of the Chuch WAS protecting the state. The Catholic Chruch losing influence/converts in Europe was tantamount to the Papal States losing land and sources of revenue, which was a threat to its power and survival.

And as for theological principles, Luther was preaching some very radical notions for the time. Chruch leaders would have seen themselves and the Church as the ONLY conduit for the common man's soul to reach Heaven. Luther preached that one's personal relationship with God/Christ and one's personal faith and adherance to the teachings of the Bible dictated your afterlife, downplaying the role of the sacraments, which would have been very heretical to preach at the time.

Source: I'm a history major with a focus on Early Modern western European history and this website. http://www.iep.utm.edu/luther/