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Hungry... + Looking For More...
author: Chris Forrester, Editorial Director, RapidTV

UK-based satellite services specialist Arqiva is going through some internal changes, with existing CEO Tom Bennie stepping down once a new CEO has been appointed, and a restructuring of the organisation into three divisions with Nick Thompson looking after Arqiva’s broadcast & media division. Thompson is supervising a business that’s in robust good shape, helped by its wide portfolio of revenues and pushed along by the UK’s aggressive analogue switch-off of its terrestrial TV system and conversion to digital.

Forrester_Fig1.jpgHowever, Arqiva is much more — there’s its wireless towers business, its play-out (‘media’) businesses, and — of key interest to us — its satellite services operation including the UK’s largest cluster of uplink dishes — the Company’s clients comprise some of the very best blue-chip broadcasters in the business. “Our underlying numbers are extremely solid. We undertook two meaty rounds of financing in 2005 and 2007 in order to acquire National Grid Wireless,” says Thompson.

“Our investors are themselves well financed, and each — or all — of them could well consider making further investments in us, and our progress. There would probably have to be some equity investments into the business should that [expansion] happen. But Arqiva also continually looks at potential opportunities from its own resources,” said Thompson. “In other words we are far from closed in our thinking. However, there’s a preference, at least in the short term, to focus on organic growth but even this involves some significant capital expenditure.”

Thomson explains that the UK’s digital switch-over from analogue terrestrial TV transmission was only about 50 percent completed and a significant ‘smart metering’ trial in the UK will, itself, need financing. Arqiva’s ‘smart metering’ trials are being undertaken with the UK government’s Department Of Energy Change, and conducted with North American-based Sensus (already involved in US/Canadian deployments with its FlexNet system to about four million homes).

“We are as well-funded as we need to be, but we are always ready to consider others. We have and are acquiring some unique skill sets and these are reflected in the near-weekly RFPs we receive,” adds Thompson. “They see what we can offer. The only problem for us is that we are in the middle of a very tough workload and set of deadlines to meet. And half-way through the operation the government decided it needed to take Channels 61 and 62 out of the mix, which meant we had to re-engineer quite a few elements of the network. It means we are busy. And moreover, the schedule itself has a lot of additional work that follows on from switch-off. As to how we can ‘export’ that skill set I can tell you it is high in our minds. We are actively talking to some very nice potential clients now.”

Forrester_Fig2.jpg The upside benefit for Arqiva is that while every European nation is committed to its Absolute Switch-Off (ASO) date, they are not all happening at the same time, and even the most enthusiastic governments can slip and slide as regards that final TV date, let alone see delays occurring for unexpected Snafus.

“Then there’s the radio side of the business. Perhaps the bandwidth implications are not quite so major, but it is a huge headache for some nations,” says Thompson. “Here in the UK, there have been various dates put forward, some aggressive, some less so. But certainly 2016-2017 is in just about everyone’s calendar. Design and clearances are well under way as far as the UK is concerned. I’d love to ring-fence about 15 guys and put a consultancy division under their control and market that, but just at the moment we are looking at individual RFPs and we’ll see how they go.”

Forrester_Fig3.jpg “By and large Europe has not even started to think about radio. Spectrum use is modest, of course, and governments cannot achieve the same benefits from switching off analogue radio, and the costs for broadcasters is significant,” says Thompson. “In the UK we are sort of half-way there, with DAB, but we know the signals are inadequate. The analogue system is pretty good, and until the automotive manufacturers gets fully behind digital radio I think progress will be slow. For the UK government, and others internationally, where there is a considerable focus on cost-reduction one has to wonder whether an ASO for analogue radio is economically viable.

Forrester_Fig4.jpg “The UK leads the way, but if we have not yet figured out the right solutions then the rest of Europe is way behind. The commercial broadcasters have next-to-zero liquidity to pay for this expansion, so it is tough to see how it could be successfully managed. It remains a big challenge. The additional digital radio plans that once existed have all but evaporated. They are all hurting, and we are doing all that we can to make their lives easy. This includes supporting contract extensions to their licences. It isn’t a great place to be. I am only five weeks into my new job, and I have spent much of my time talking to the key stakeholders involved in radio, including the regulators, and all of them admit there are considerable challenges.”

“HDTV is a terrific success for us. We have just conducted a major research study, and looking at all of the channels but in particular some of the smaller broadcasters, and generally asking their intent as far as HD is concerned. We can now see that all of the UK’s Tier 1 broadcasters, the major networks, and now on air with HD, at least on satellite and cable. The Tier 2 players are major names, and include the Viacoms, Turners, Discovery-type channels and they too are mostly on air with HD for their main brands.”

However, Thompson stresses that despite more efficient compression, and the availability of DVB-S2 transmissions, the additional costs would be intimidating for some would-be HDTV MPEG4/AVC broadcasters. “Carriage is still a huge element. It is likely to triple uplink costs and this is a big penalty for some. Besides, if you are screening a recently-made programme, perhaps that was originated in HD, then some of this improved quality will still come to the screen even though transmission is ‘only’ in standard MPEG2 definition.”

SpaceSymp_ad_SM0211.jpg The bigger debate is in managing the bandwidth, both on satellite and terrestrial, he says. “Not every channel needs HDTV. However, there’s a feeling that, one of these days, BSkyB will switch off its MPEG2 ‘standard definition’ transmissions. I am not sure that I am completely convinced by the concept,” he says. “But from a marketing concept, you can see the logic in saying at some point in the future that they’ll switch to all-MPEG4 transmissions. They were, after all, quite aggressive in switching from analogue to digital, for example. If Sky goes that route then there will be benefits, even if some broadcasters stick with SD, given that, over time, more and more programming will be captured in HD, and so will look better on screen even if it is an SD transmission.”

“I see almost all transmissions being in higher definition, therefore. I see a greater demand on overall bandwidth. The general view is that if you look five years out from today there will probably be fewer channels on air overall, because some of them will find an alternate route to market probably over broadband.

“Consequently, the remaining channels, still measured in the many hundreds, will almost certainly be in higher quality either through HD transmission, or HD origination,” said Thompson. “We think the net gain should be up, not down. There will certainly be a period of dual-illumination.

“Today it is impossible for broadcasters to transmit on satellite an MPEG4-based service that is NOT high-def because the EPG would not list them. This is not difficult to fix, but it does somewhat depend on Sky. If Sky chooses to go HD-only, then Freesat could become the home for more channels which have no wish to go HD. There might even be confusion in the market as to the options available to smaller broadcasters. But an all-HD platform while pulling many broadcasters up to the HD standard is not going to appeal to everyone.”

The UK currently has one 3D-TV channel on air, from BSkyB, and Thompson is cautiously optimistic about its television prospects, helped by its enthusiasm for 3D-into-cinema, where it has an industry-leading role in the UK. Thompson says that 3D has been the catalyst for the conversion of the UK’s cinemas to digital, both in terms of delivery and projection. “I think there will be plenty of interest in sport and movies, but I am not sure that seeing the news in 3D is going to be that compelling!”

Arqiva acquired the Internet television assets formerly known as ‘Project Kangaroo’ built by Britain’s public broadcasters, and is now re-branded as ‘SeeSaw’. Arqiva paid about 8 million pounds for the technology. However, Thompson admits that interest is modest, although the prospects for the service remain considerable.

“Not everyone is the BBC, and we see interest coming from those broadcasters, indeed everyone else, looking for a solution to their problems in this area. They are either not in the [broadband] game and need to be in it. But at the same time it costs a fortune, which they don’t have. Our perspective is that the SeeSaw model can work with us as a neutral host and have an opportunity. But we need to find a retail partner, a customer-facing partner. Reaching the consumer is more difficult and more expensive. We are not ourselves a broadcaster and we don’t own a newspaper group! Calendar year 2011 is key.”Forrester_Fig5.jpg

2012 is the next quadrennial year, and with the London Olympic Games creating more than a casual amount of interest for Arqiva, both in terms of its Outside Broadcast capacity and direct services to the wider world on behalf of the host broadcaster, and also for unilateral links for clients. “Even though many decisions are made well ahead of the event, we find that many broadcasters leave their individual capacity decisions until quite late. We’ll be busy enough, but it is just a single spike in the year and the OB facilities are being looked at in some detail but when we get to the 12-month mark there will be the normal rush for facilities. Whatever we have available. I guarantee will be sold.”

Thompson says Arqiva has spent the past few years looking at Asia and China, in particular, partly to support existing clients. But also to seek out new contracts. He admits that they had hoped to acquire a local presence in the region. That has not happened. “We are still looking. We will find a way of having a presence in Asia either by way of ownership or a partnership locally. The Arqiva brand needs to be in the region. The Americas is still important to us, and again we have looked closely at certain businesses but either the price expectation on behalf of the seller has been too rich or for other reasons we have failed to make an agreement. But it is still a high target for us. The New Year will see a renewed focus from us, once the changes here settle down.”

Thompson also said they are seeking a larger role in satellite communications for governmental clients. They already have considerable expertise in secured communications, and are looking to build on those skills.

As to Arqiva’s other objectives and challenges ahead Mr. Thompson admitted that business in the UK had gone through a tough period. “People have tightened their belts and value for money is higher than ever on our client’s agendas. We are on the tender lists, but pricing is key and yet we have to maintain a responsible margin. There are still savings to be made here, especially as a result of the assorted mergers and acquisitions we have gone through. Focus on cost, as always, and trying to ensure that we don’t lose business that we want.” Forrester_Fig6.jpg

About the author
Chris Forrester is a well-known broadcasting journalist and industry consultant. He reports on all aspects of broadcasting with special emphasis on content, the business of television and emerging applications. He founded Rapid TV News and has edited Interspace and its successor Inside Satellite TV since 1996.  He also files for Advanced-Television.com.