While Others Fret over Netflix, Intelsat Chief Stays Optimistic
PARIS — Satellite fleet operator Intelsat on Nov. 13 said it had seen no impact of Over-The-Top (OTT) Internet video streaming services like Netflix on its business, in part because Intelsat’s broadcast customers are locked into long-term leases.
In a presentation to an investor conference in Barcelona, Spain, Intelsat Chief Executive Stephen Spengler addressed what many consider to be a major long-term threat to the satellite industry’s core moneymaker, telling investors Internet video distribution ultimately will make common cause with satellites for the same reason cable operators did.
Intelsat’s current broadcast customers “have to address the issue of people moving to the Internet, and to OTT delivery, and that of course is terrestrial for the time being,” Spengler said. “But we think that, at some point, satellites can play a role. Some of the benefits of satellite distribution to cable head-ends can also be spread to [Internet] servers and POPs [points of presence] in various cities. We’re going to be running tests next year with customers to see how this can be rolled out.”
Internet delivery remains small today compared to conventional video distribution, but it is growing fast and is viewed as a long-term threat to what remains the core business of commercial satellite fleets, starting in North America. Any satellite conference in the past couple of years will find people remarking that their children have all but abandoned linear TV.
Spengler said Intelsat is aware of the concerns but has yet to notice any OTT effect on the company’s television distribution contracts with U.S. broadcasters, in part because the typical 10- or 15-year contract comes up for renewal infrequently.
“We haven’t seen OTT impacting the pricing for those renewals because the value of the [television broadcast] neighborhoods is very important.
“They view OTT as a supplementary service that they have to offer, but their core customer sets are still DTH operations and cable head-ends,” Spengler said. “They still get a huge amount of revenue from those customers. The expectation is that this is going to continue for the foreseeable future. It’s not going away anytime soon.”
Headquartered in Luxembourg with its main offices in McLean, Virginia, Intelsat’s flat top-line revenue growth and $14.7 billion in debt has forced the company to find creative ways of financing new investment as it waits for its Epic high-throughput satellites to return the company to a growth track.
The first Epic satellite, Intelsat 29e, is scheduled for launch in late January aboard a European Ariane 5 heavy-lift rocket. Intelsat was determined enough to protect the launch date that it agreed to be the sole passenger on the rocket, paying extra to avoid the delays of waiting for a compatible co-passenger.
Intelsat recently concluded a five-launch agreement with International Launch Services of Reston, Virginia, for commercial flights aboard Russia’s Proton rocket by 2023. No specific satellites have been assigned to these launches, but the contract illustrates Intelsat’s determination to protect its satellite launch schedule by supporting three rockets — the ILS Proton, the Ariane 5 and the SpaceX Falcon, he said.
Spengler said Intelsat 29e would be in service in mid-2016 given the additional time needed to calibrate and test the satellite’s Ku-band spot beams. Intelsat 29e has about 25 gigabits per second of throughput capacity.
Like Intelsat’s other Epic high-throughput satellites the 29e has a dual role — develop new business with the high-bandwidth spot beams, and keep the business acquired by the satellite it is replacing.
Spengler said that, on average, about 20 percent of the Epic satellites’ capacity will be taken up by customers transferring existing business from older satellites to the newer Epic-class spacecraft.
In addition to fielding its own satellites, Intelsat has been able to piggyback onto other satellites through shared investment. An Epic payload is on board a Los Angeles-based DirecTV satellite launching in 2016. Intelsat recently concluded an agreement with Sky Perfect JSat of Japan, a long-time partner, to share investment in a Horizons 3e satellite, at 169 degrees east.
Set for launch in late 2018, Horizons 3e will carry an Intelsat Epic Ku-band high-throughput payload with about 20 gigabits per second of capacity. Intelsat contributed the orbital slot to the Horizons joint venture, which will finance the satellite with 50 percent debt and 50 percent equity.
Intelsat also contributed its rights to 45 degrees east as part of a joint arrangement with the government of Azerbaijan for the Azersat-2 satellite.