INSIGHT: Euroconsult Executive Briefing
Broadcast Through The Crisis
by Pacome Revillon Managing Director, Euroconsult
As Euroconsult and many others in the industry have regularly underlined, TV broadcasting is the leading revenue driver for FSS satellite operators, with over two thirds of operators involved in distribution of TV channels.
In recent years, demand for satellite capacity for TV broadcasting has grown by up to 10 percent per year, with broadcasters signing long-term contracts sometimes for the lifetime of the satellite. As such, they provide satellite operators important visibility and stability over time. Large decreases in capacity usage generally only occur when there is a failure or a merger of satellite pay-TV platforms, both of which have proved to be very limited. Even mergers usually result in stronger market players which tend to result in new channel additions and capacity requirements over time.
Crisis = Mixed Impact On Satellite Pay-TV Platforms
As a business to consumer (BtoC) industry, satellite pay-TV platforms have heavy exposure to the current economic crisis. Overall expectations are for a slowdown in subscriptions to pay-TV services, while nearly every country will be impacted by this recession of historical proportions.
Still, a major decrease in the number of subscribers remains unlikely in most markets. This is due to a number of different factors, including yearly subscription commitments and the addition of a number of services such as digital video recording, which have succeeded in reducing churn levels in recent years. Simultaneously, satellite pay-TV platforms derive most of their revenue from subscriptions rather than advertising. This may lighten the impact of the crisis on them, as compared to free-to-air (FTA) TV channels.
However, the crisis may still result in the failure of platforms that have recently launched as they may not be able to reach critical size. GTV in Africa recently declared bankruptcy, and other cases may follow in the coming months. In markets where satellite pay-TV only recently took off, and where several platforms are in head-to-head competition to sign subscribers, consolidation similar to what followed the telecom and media crisis of the early 2000s could be expected.
Competition To Still Drive Growth
While certain market players may suffer deeply during this crisis, several factors may still point to continued growth in capacity demand for TV broadcasting in the next two years.
First, a number of new platforms that were recently launched and are still striving to reach critical mass may still need to add channels to their initial packages. This may be especially relevant in markets where several platforms are in competition.
Second, a number of the newer platforms are backed by telecom operators eager to provide TV services on a national scale as part of their triple play strategies. Such platforms are expected to enlarge their offerings significantly over time in order to compete with established platforms. This, in turn, should result in demand for satellite capacity.
Third, while satellite is considered by many a complementary network for optimizing distribution, the economic crisis is expected to result in a decrease in investments in fiber optic and other terrestrial broadband networks. Satellites very high level of cost effectiveness for TV distribution could increase its importance telecom operators strategies in the medium to long term.
Fourth, beyond Direct-to-Home (DTH) satellite reception, competition between terrestrial networks is expected to result in increased demand for content, which could result in more satellite capacity used. Thematic TV channels, eager to recover losses in certain markets, may also seek additional distribution rights on new platforms and countries, which could benefit satellite operators.
HDTV A Growth Driver
Channel additions may still slow down in 2009 as TV broadcasters become more cautious regarding investments. However, there is one area where growth is expected high definition television (HDTV).
HDTV, already largely developed in the U.S., is on the cusp of strong growth phase, at least in Europe. As a just-released Euroconsult report on prospects for HDTV in Europe points out, the number of networks offering HD tripled in the last two years. As HD is about to become a standard feature of TV sets in Europe, the addressable market for HD services is growing strongly and could reach a penetration rate of 51 percent of TV households by 2010.
Households actually receiving HD services, which stood at around 4 million last year, are expected to reach 39 million households by 2012. Consequently, increasing demand for satellite capacity for HD is expected in the region over the next three years as broadcasters expand offerings to address increasing demand.
In other regions, while HDTV offerings are expected to remain more limited, a large number of satellite pay-TV broadcasters in Africa and Asia indicated last year they expected to launch at least limited HDTV offerings of up to three channels in number. While the crisis may force some to postpone certain services, HD is expected to represent a support for satellite demand through the crisis.
Mobile Digital Broadcasting Facing A Market Redefinition
In recent years the mobile audio and radio broadcasting market has appeared to face a real challenge to its business model. For this segment, the crisis may lead to a restructuring and redefinition of the market.
In the US., the recently merged Sirius XM, provider of mobile digital audio broadcasting (DAB) services, appeared to be on the brink of Chapter 11 before a saving lifeline was tossed to them by Liberty Media. While the drop in car sales in the US has undoubtedly been a blow to operations and growth prospects for the DAB service provider, difficulty reaching break even after eight years of operations underscores the challenges of the related business model and of the critical market size required to survive. Worldspace filed for bankruptcy in late 2008, jeopardizing initial plans for a DAB service that was launched in Italy in 2009.
Mobile video services are still in definition phase. However, it appears that ultimately, satellite would likely play a gap filler role for terrestrial coverage in most markets, with services to be packaged by cellular operators. However, the market still faces major uncertainties that are only exacerbated by the current crisis.
Market players in many countries are still struggling to define revenue distribution in function of the value each brings including terminal manufacturers, cellular operators, other network operators (towers, satellites), pay-TV packagers, TV channels, and content producers. Negotiations may become quite tense, due to potential limited revenue prospects in terms of subscribers, ARPU, and advertising revenues at least in the short term.
For operators the challenge remains establishing a role as a key node in the distribution network, from the start of service. While the ICO-G1 satellite completed testing in early January, agreements for national service distribution have yet to be announced (beyond short-term, geographically limited service tests).
In Europe, allocation of spectrum by the European Commission is still an ongoing process. While a choice among the four confirmed bidders is expected this year, a delay in the decision process could complicate satellite operators ability to negotiate with terrestrial market players, potentially limiting their ability to take advantage of future market growth.
For FSS operators, strong orbital positions for TV broadcasting will be key assets through the crisis Continued strength of satellite TV broadcasting should limit the impact of the crisis for FSS operators.
While some market players are exposed to the risk of failure of certain TV broadcasters, the crisis will once again stress the importance of having strong and attractive orbital positions. Those assets may represent the primary element of value of operators and their best protection through the crisis.
About the author
Pacome Revillon is Managing Director of Euroconsult since 2003, a leading international research and consulting company specialized in satellite communications and broadcasting with over 560 clients in 51 countries. Pacome contributes to numerous consulting assignments in the satellite broadcasting and communications markets for international companies including satellite operators, satellite TV platforms, TV channels, media groups, manufacturers, investment banks, private equity funds and public institutions. Pacome is the editor of several Euroconsult research reports, the Satellite Communications and Broadcasting Markets Survey, ten-year World Markets Forecasts; the Satellite TV Platforms, ten-year World Survey and Prospects; the HDTV in Europe, key Economics and ten-year Prospects and the World Mobile Satellite Communications Market Survey, ten-year Prospects. For more info: www.euroconsult-ec.com.