RRSat Riding High on Video Services Outsourcing Trend

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PARIS — Satellite video services provider RRSat Global Communications Network expects its recent growth in both revenue and gross profit to continue as it leverages its existing satellite and fiber infrastructure to handle a growing customer base.

Airport City, Israel-based RRSat said the growing complexity of video distribution to fixed and mobile platforms is pushing more broadcasters to outsource content management services to companies like RRSat.

The downside to this is that RRSat must establish a local presence in the regions where it operates to manage the content distributed by its network, which includes capacity leased on more than 40 satellites in addition to its fiber channels.

These new offices — the latest is in Moscow — will add to RRSat’s sales and marketing budget but will pay off in the form of increased revenue and profit — the latter being made possible by the fact that RRSat will not need to expand its core infrastructure to accommodate the growth, RRSat Chief Executive Avi Cohen said.

“We are very optimistic regarding our future,” Cohen told investors in an Aug. 8 conference call. He said that what RRSat refers to as “glocalization,” meaning a global network with local presence, is following the evolution of the video industry. “For content management, up to now we have been doing this only in Israel, but customers want it done locally,” he said.

Television channels continue to proliferate, and many of them are finding audiences worldwide. But to close the loop with local buyers, RRSat needs regional offices to prepare, manage and distribute the content, Cohen said.

To reduce its operating costs as it increases its sales and marketing spending, RRSat is consolidating two facilities in Israel into one at a cost of $4 million.

For the three months ending June 30, RRSat reported revenue of $29.5 million, a record for the company and up 5 percent from the same period a year earlier and a slight increase from the previous three-month period. The gross profit margin was 24.9 percent compared with 23.8 percent a year ago and 24.1 percent in the first three months of 2013.

Mobile satellite services revenue was $2.6 million for the latest three-month period, up 20 percent from the same period last year. A notable contract this year was with maritime fleet operator Swire Pacific Offshore of Singapore, which in addition to its satellite capacity from London-based Inmarsat will be using RRSat’s network to provide programming to crew members.

RRSat Chief Financial Officer Shmulik Koren said during the conference call that mobile satellite services likely will remain a niche for the company, but that the maritime industry as a whole is looking to augment the video and data services it offers to crew members to retain staff. RRSat’s mobile satellite services segment grew 7.5 percent in 2012, to $9 million, and is likely to surpass $10 million this year.

The gross profit margin for the mobile satellite business increased to nearly 22 percent for the three months ending June 30, up from 12.5 percent a year ago, Koren said.

In addition to packaged television, RRSat’s growth is in part due to its purchase, in late 2012, of S2M Sports and Media Solutions of the United States, which is a licensed distributor of U.S. National Football League and ESPN International programming.

RRSat’s backlog of business stood at $205 million at June 30, up 1 percent from where it was on March 31. Unlike the major satellite fleet operators whose business is heavily weighted to video distribution, RRSat’s customers typically do not contract for more than a year or two.

More than half the company’s backlog is for services to be delivered by mid-2014. 

Koren said 39 percent of the company’s revenue is generated from customers located in Europe, 31 percent from North America, 11 percent from Asia, 8 percent from the Middle East not including Israel, 7 percent from Israel and 4 percent from the rest of the world.

RRSat said it expects its revenue for 2013 to be about $122.5 million, up 8 percent from last year.