PARIS — The World Satellite Business Week’s telecommunications segment held here Sept. 14-17 was mainly a celebration of everything satellites are doing today and a forecast of how much more they’ll do tomorrow.
Connected air, rail, maritime and automobile travel promises to open vast new markets for satellite broadband.
Terrestrial mobile broadband’s explosive growth will overwhelm current networks, giving satellites a big role in backhauling signals from rural areas to the telecommunications grids.
The price of ultra-high-definition-capable television sets is in free-fall, and the first channels are appearing, raising the hope of dual broadcasts by the big networks as they transition from one to the other, filling satellite transponders just as the transponders were filled during the transition from standard-definition to digital broadcasts.
Every discussion fairly pulsed with optimism — except one.
Toward the end of the financial side of the conference, during a session on TV distribution at which half the scheduled speakers did not show up, two large media distribution companies begged to differ with the prevailing high spirits.
Both Bill Tillson, executive chairman of Atlanta-based Encompass Digital Media and David Crawford, managing director for satellite and media at London-based Arqiva both big users of satellite bandwidth said the television landscape is changing much faster than even they had predicted as little as a year ago, and that the news is not good for satellite broadcasting.
Beaming television signals is the only commercial satellite business with a demonstrated long-term profitability. But this is the industry where, at least seen from London and the United States, the future does not look bright.
Not surprisingly, the threat is non-linear television and over-the-top (OTT) delivery of programs on demand to consumers.
“A year ago I thought it was a 10-year horizon, that it would remain a very stable business, even if declining, over 10 years,” Tillson said of satellite television. “I’ve changed my view in the last year.”
In a data point unlikely to be repeated by a satellite fleet operator, Tillson said 70 percent of all North American leases of C-band satellite transponders feeding television to cable head-ends and to consumer premises are up for renewal between 2015 and 2022.
Most of them date from the early 2000s, when broadcasters would lease satellite capacity for 15 years or more the full lives of the spacecraft. It is contracts like this that permit satellite fleet operators to spend $250 million or more on a single satellite at least three years before it starts generating revenue.
“The best information that I have for the renewal of those transponders is that [broadcast networks] will take less than 50 percent of the prior capacity – and in most cases, for a maximum of 10 years,” Tillson said. “It’s a dramatic effect.”
Tillson said that, some years ago, he negotiated an 18-year satellite capacity lease when there were 16,000 cable head-ends in North America required to serve the entire consumer market.
“Today you can get to over 90 percent of the total market with about 350 cable head-ends,” he said. “You can reach the entire market with 1,600 head-ends.”
Arqiva’s Crawford said he agreed with Tillson’s assessment “on all key points. The conversations we have with our clients are principally around the different forms of OTT. Satellites are taken for granted, and seen as pretty mature.”
“The pricing has to change,” Crawford said. “It has to come down because it has got so much more competition – from fiber, terrestrial broadband and, increasingly, mobile technologies with LTE coming. And when 5G comes in 5-10 years it will be another step change.
“We could have a situation like we had with submarine cable 10-15 years ago, with massive overcapacity that led to price reductions.”
As second-tier channels attract fewer viewers, the big networks will be less likely to carry them, meaning the big satellite customers will need less capacity, Tillson said.
Ferdinand Kayser, chief commercial officer of satellite fleet operator SES of Luxembourg, sought to put into context the growth headwinds in a Sept. 14 briefing with journalists and a Sept. 10 presentation to the IBC media conference in Amsterdam.
Even in the United States, where OTT is more developed than any other major market, households viewed linear television for 296 minutes per day on average in 2014. The per-day average has slipped in the past couple of years, but not much.
Non-linear television according to the SES figures, based on Eurodata TV findings, totaled 26 minutes in 2014 per U.S. household.