In the last three years, cable and telecom operators in advanced TV markets such as the United States and Europe have pushed to introduce multi-play offerings of digital television, video on demand, broadband access and telephony. This was partly a defensive move, as telecom operators needed to compensate for the structural decline in voice revenue. This new competition, coupled with the lack of a return link via satellite, led to serious worries about the prospects for satellite TV broadcasting worldwide. Further aggravating concerns, this coincided with a phase of restructuring and consolidation that impacted a number of markets such as Latin America, France, Italy and Spain.
Yet the current performance of satellite TV underscores the structural strengths of the market. According to Euroconsult’s research, subscriptions to satellite TV platforms will reach 93 million households worldwide at the end of 2007, with double-digit growth for the tenth year in a row. All platforms for which financial results are available
now are posting operating profits on overall revenue
exceeding $59 billion.
Even more striking is the number of new satellite TV platforms. Following several years of stagnation, the number of satellite TV platforms has increased from 64 services in 2005 to likely 90 platforms at the end of 2007. Emerging digital markets such as Central Europe, India and Indonesia – as well as Latin America and Africa – are driving this growth. For example, in India two platforms (Dish TV and Tata Sky) are currently competing, and additional platforms are under development. The Indian market, still in its infancy as recently as 2004, grew to 2.5 million subscribers last year and should grow to 25 million to 30 million subscribers by 2015.
Why this new enthusiasm for satellite TV? The drop in equipment prices dramatically has reduced investment costs for aspiring platforms. The cost of a MPEG-2 compression set-top-box has fallen by more than 80 percent in the last five years. This has allowed the recent launch of several platforms offering services for only a few dollars per month, key to driving subscriptions in some emerging markets, which in turn improves the platforms’ performance, and so forth.
At the same time we see a new trend where satellite technology is used by cable and telecom operators to accelerate their digital strategies. Cable and telecom operators have backed more than half of the platforms introduced in the last three years. Their aim is to quickly bring to market a digital service at a national scale to compete with current network offerings. For example, Telefonica recently introduced satellite TV services in Chile, Colombia and Peru, and is getting started in Brazil and Argentina.
To address the multi-play threat we also have seen changes in the shareholding structures and a redefinition of business models in the most advanced TV markets. In Europe, most satellite TV platforms either have invested in terrestrial infrastructure – for example, BSkyB in the United Kingdom – or have signed agreements with telecom operators, such as CanalSat in France and Premiere in Germany. At the corporate level, several transactions recently took place including: a merger between the TV platform SkyPerfecTV and satellite operator JSAT of Japan; a merger between CanalSat and TPS (both platforms) in France; and the agreement between Liberty Media and News Corp. for DirecTV in the United States.
By revisiting their business models and market positioning, most platforms largely have secured their business prospects in the short to mid term. Although most platforms in advanced markets likely will present a mix of satellite and terrestrial subscribers, there would be no economic justification to cut satellite transmissions in the foreseeable future. At the same time, the push to differentiate their satellite offering, which is often their main revenue and profit driver, likely will result in the introduction of high-definition services.
Growth in subscriptions and the number of platforms and an increase in competitive pressure are resulting in a rapid increase in the number of channels broadcast by satellite while platforms try to optimize their appeal to households. Strong demand from terrestrial networks for the expansion of digital offers over cable, digital terrestrial television, DSL and fiber for the delivery of channels to the head-ends of their networks also results in a ramping number of channels distributed by satellite.
Overall, more than 18,200 TV channels were broadcast by satellite worldwide in 2006, up from 15,800 channels in 2005 – record growth of 2,400 channels. It is worth noting that high definition, a growth driver for the next 10 years, only represented 8 percent of that growth. While high-definition television (HDTV) soon will represent the largest part of channel increases in North America, a large part of the growth still will be in standard definition in other world regions in the next five years.
Satellite operators clearly are seizing the opportunity and moving to video broadcast infrastructures. The increase in the number of channels resulted in 8 percent growth in the demand of satellite capacity for video distribution last year. While this market segment represented 36 percent of total capacity used in 2000, this share climbed to 42 percent of capacity leased in 2006. In the long term, the performance gap between operators well-positioned in the video broadcasting market and others likely will widen as a result of demand and pricing dynamics between the video and telecom market segments (video commands higher lease rates than telecoms applications).
For satellite operators largely absent from the TV market, the emergence of new satellite TV platforms may represent opportunities to strengthen their video positioning. Some operators already have begun offering lower capacity prices to emerging platforms with limited investment capabilities to win their business and sign long-term agreements.
Far from the much anticipated threat, telecom and media convergence is turning into a growth driver for satellite operators. Although medium-term challenges cannot be ignored, satellite operators are holding a strong hand. Played right, they can benefit from current market trends and define a strong market position in the future global network that will deliver digital entertainment to final users.
PacmeRevillon is managing director of Euroconsult, a research and analyst firm specializing
satellite applications and communications.