Transponder Trends in North America
by Patrick French, NSR
In many ways, the mother of true commercial satellite transponder leasing services is the North American C-band video services segment. Commercial satellite C-band payloads in the North American cable arc are used to bring all kinds of television programs to literally tens of millions of households. This television content is not only delivered via cable MSOs, but nearly every television affiliate station in the U.S. and Canada receives at least some (if not all) of its daily television programming via C-band satellite capacity. Further, substantial programming contribution and even some SNG services are still C-band based in North America. Even the IPTV segment in the region is largely a C-band phenomenon for the moment. All of these markets constitute what NSR labels as C-band video services and accounted for an estimated 87 percent of all commercial C-band transponder leasing in North America for the end of 2008.
It is true that over the last two decades, Ku-band capacity has come to play a somewhat larger role in the North America market (55 percent Ku-band to 45 percent C-band), notably due to DTH and various consumer and enterprise broadband services. One must never forget it was C-band that started it all in the 1970s and, because of this heritage position, still largely dictates how television gets to the majority of North American households. Understanding the current trends for C-band video services today requires looking at the market from a number of different angles.
Sorting out conflicting channel trends in C-band video distribution services
In sorting out C-band demand trends, various sub-segments must be individually separated for analysis. NSR first divides the C-band video distribution market into the cable headend and general network (i.e., ABC, CBS, NBC, FOX and CBC) channel distribution services from the C-band IPTV market. Next, NSR separately assesses analog, SD, and HD channel trends in each of these segments. First looking to the cable headend and network distribution sector, this is actually the traditional core of the market and counts for, by far, the most channels and leased capacity.
There are still a substantial number of C-band analog channels remaining in the North American market, but these have been on the decline for years now. For broadcasters, the end of analog broadcasting is not only a major revenue saver (given that it still typically takes a full transponder to carry a single analog channel), but it also frees up the capacity for the all important growth in HD and SD channels. Between 2003 and 2007, nearly 80 percent of the C-band analog channels carried for the North American market had already been converted to digital. NSR expects the trend to continue until all analog channels are assumed to finally disappear around 2014.
In 2008, the majority of the C-band SD channels for the North American market were for cable headends and network channel distribution as part of the overall video distribution market. SD channels continue to see steady growth, with occasional years experiencing major gains such as in 2008 due to the launch of Comcast Media Centers new HITS Quantum bouquet on AMC-18. A small sampling of other new channels launched over the last 18 months in the North American market include Spanish Broadcasting Systems Mega TV channel carried by Intelsat on Galaxy-13, OlympuSATs renewal and expansion of capacity on Intelsats Galaxy-23, and WealthTV from Herring Broadcasting, Inc., also being carried Intelsats Galaxy-13 satellite.
NSR, nonetheless, expects slower SD channel increases through 2009 with the poor economic conditions being the culprit. However, an eventual economic recovery will no doubt lead to a spike in channel additions in the 2010 and 2011 period.
The most important trend in the C-band cable headend and network distribution market in North America is the rapid increase in C-band HD channels. NSRs research shows that HD channels in 2007 increased by 78 percent over 2006. In 2008, it appears that there will be a doubling of HD channels launched for cable headends and network distribution services with the HITS Quantum bouquet playing a large role in the 2008 gain.
Other recent contracts for HD channel launched include Crawford Satellite Services launching MavTV and World Fishing Network (WFN) on AMC-10, Intelsat carrying a new HD channel for the National Hockey League Network on Galaxy-15, QVCHD going up on SES Americoms AMC-11, and Rainbow Network Communications signing a multi-year capacity contract on Galaxy-14, with Intelsat to deliver HD programming into the North American cable market. NSR anticipates that HD channel launches will continue strong through 2009 and 2010 despite difficult economic conditions because HD has become such a key differentiator and revenue driver for cable operators that they will need the HD content in order to keep competitive, especially in their ongoing battle with DTH services.
IPTV Market Gaining Traction Or Is It?
The IPTV market in North America appeared to be picking up steam over the course of 2008 as a number of competitors begin to nail down a substantial number of contracts. SES Americom announced in November 2008 that more than 65 telcos in 31 states had signed up for IP Prime, with two dozen of these already commercially delivering the IP Prime service to subscribers and another dozen expected to turn on by the end of 2008. Avail Media had also grown its customer base with its linear IPTV service having 20 customers in 14 states in the U.S. as of the close of August 2008. Further, the company launched its HD channel service in June 2008 and should offer over 50 HD channels as of the start of 2009. Intelsat continues to market its Intelsat IPTV service as well, and the Intelsat IPTV platform is used for the SD channel content for the Avail Media IPTV service.
From the capacity leasing point of view, NSR only considers those IPTV service providers that actually lease capacity from a satellite operator or use a dedicated portion of a satellite payload for an IPTV service. Beyond those companies cited above, there are many additional content rights aggregators and system integrators that play in the IPTV market, but who do not directly account for leased satellite capacity. NSRs methodology includes IP Prime and Intelsat IPTV as part of the C-band IPTV market, and Avail Media also has a long standing contract with Telesat for C-band satellite capacity.
NSRs only long term concern expressed in its Global Assessment of Satellite Demand, 5th Edition (GASD5) study for the IPTV market was if one of these services were eventually to fold. This concern became reality several weeks after releasing the GASD5 study, as SES announced that it would shut down its IP Prime service by mid-2009 due to slow subscriber uptake and the failure of the service to meet internal rate of return goals. Hopefully companies see IPTV as central to their businesses, not a sideline, and will continue to have the wherewithal to develop IPTV services in North America over the longer-term.
The Market Is In Contraction
As noted above, a considerable amount of North American C-band transponder capacity continues to be used for classic contribution and occasional use television (OUTV) services, including some for SNG services. Roughly two-thirds of the leased C-band capacity attributed to the North American video contribution and OUTV market is used to provision analog feeds for the region. Since 2003, the number of analog C-band feeds attributed to market has dropped by a third, and NSR has every reason to expect a continued slow, gradual decline in the use of analog feeds for full-time video contribution services.
The good news is that C-band analog feeds are converting to digital at a less rapid pace than C-band analog channels. NSR expects some C-band analog feeds will continue to be used through 2017. The bad news is conversion of analog feeds to digital does not create enough new digital C-band feeds to absorb the freed up capacity. The net result is declining C-band transponder demand for video contribution & OUTV. While C-band has a heritage in the North American market for video contribution & OUTV services, there is a clear migration of this market to Ku-band in order to support lower cost equipment, most especially for the various occasional use and SNG markets.
Wrapping Up Services + Supply
With the demand trends for the various video services markets shown above, NSR estimated in the GASD 5th Edition study video services generated about 350 C-band TPEs (36 MHz transponder equivalents) of commercial capacity demand in 2007. This is expected to rise to about 425 C-band TPEs in 2012, driven mainly on the strength of SD and HD channel growth, though exclusion of the SES IP Prime service from 2009 onward reduces this amount by about 20 C-band TPEs.
From 2013 through to the end of the forecast period in 2017, NSR predicts relatively flat C-band capacity demand for video services mainly because the rate of growth in HD channels will likely slow and continued analog to digital channel conversion plus declining contribution & OUTV market offsets much of the gains coming from SD and HD channel gains. Additionally, movement to MPEG-4 compression also leads to flattening capacity demand.
How does this contrast against C-band transponder supply for the region? NSR has adjusted its North American C-band supply estimates from its GASD 5th Edition study to only reflect satellites traditionally thought of as part of the North American cable arc and also removed satellites designated as dedicated in-orbit backup capacity. This places North American C-band cable arc station-kept supply at over 550 TPEs in 2007, and this is projected to climb to in excess of 625 TPEs by 2010.
Reasons for the supply growth are varied, yet mainly center on fleet upgrades that are replenishing capacity that is not available due to satellite anomalies, replacing capacity that is currently in inclined orbit with station-kept capacity, or replacing capacity that was for North America but has recently been reallocated to other markets like South America.
After 2010, NSR expects C-band supply to drop again as the current replacement cycle slows and also in response to satellite operators trying to better tailor their in orbit C-band supply for North America to actual demand levels.
C-band video services transponder demand is a substantial and growing user of commercial C-band cable arc transponder supply. Accounting for about two-thirds of C-band cable arc supply in 2007, C-band video services will make use of approximately three-quarters of the C-band cable arc supply by the end of the forecast period. It is noted that this is not a fill rate as there are other C-band markets that make use of the commercially available supply, but video services certainly account for the large majority of overall C-band demand in North America.
Overall, the satellite industry and satellite operators tend to make a big fuss over growth in HD and (until recently) the prospects for IPTV services. These are no doubt important markets as they are certainly driving new C-band demand in the North America market. Just as importantly, and too often overlooked or ignored, is the fact that HD channel growth and IPTV, as well as regular old gains in carriage of SD channels, goes to fill big holes created by the conversion of analog channels and feeds to digital, as well as using up capacity that has been freed up by migration to more efficient broadcasting technologies like MPEG-4.
From NSRs point of view it appears that once the period of rapid growth in HD content carried on C-band capacity and emergence (and hopefully survival) of IPTV is past, the North American C-band market will likely enter into a period of slow growth. This is, of course, unless some new video application is found to help fill up the C-band cable arc satellites. This will be a major preoccupation for North American satellite operators in the coming years as they experiment with new uses for the mother of commercial satellite services C-band.
About the author
Mr. French joined Northern Sky Research in September 2003 and has since authored numerous studies, the most recent being the Global Assessment of Satellite Demand, 2nd. Edition and Broadband Satellite Markets 5th. Edition. He has sought to expand NSRs coverage of the satellite industry into areas such commercial satellite supply and demand modeling, video distribution and contribution, DTH, telephony and narrowband VSAT networks. In addition, he has undertaken client specific projects in diverse satellite applications and intends to broaden NSR coverage of the European satellite industry.
From 1990 to 1999, Mr. French was a staff member of the International Space University (ISU), first in Cambridge, Massachusetts and then 6 ½ years at ISUs Central Campus located in Strasbourg, France. Mr. French held numerous positions within ISU organizing conferences, short courses, and workshops. In parallel, he was responsible for managing the development of the new ISU Central Campus facilities that were completed in mid-2003.
Following his work at ISU, Mr. French joined Frost & Sullivan where he rapidly advanced to the position of Strategic Analyst for the Satellite Communications group. While at Frost & Sullivan, Mr. French authored eight studies, led numerous consulting projects, and tracked other diverse markets such as satellite television, launch services, emerging satellite applications and content delivery networks.