INSIGHT: Transformation of the Earth Observation Sector
by Adam Keith
SatMagazine was delighted to learn Adam was available to discuss his analysis and thoughts on the transformation of the Earth Observation (EO) sector of our industry... which was quite timely, given the theme of our May issue!
Adam, thanks for taking the time to talk with us... we are hearing quite a bit about Earth observation these days. What are the key trends you are noticing in the industry?
The Earth observation (EO) sector has never been as attractive as it is today—for private sector actors, government entities not previously involved, and for the financing community, which is clearly a new development. The sector is growing by a number of measures...
First, the number of satellites to be built and launched in the coming 10 years is forecast to reach nearly 200, a real boom compared to the previous decade when only 102 satellites were launched (48 meteorology satellites, 151 for EO observation). More satellites means increased manufacturing revenues.
While the average satellite has a lower price tag, overall revenues for meteorology and EO observation are expected to reach $25.4 billion by 2017, a 34 percent increase from today.
There is also real development in the commercial data market, which is currently in early stages but already showing real growth. In the next 10 years EO satellites will be launched from at least 29 countries, including government and commercial operators.
What’s driving this growth?
Established government space programs, such as NASA and ESA, remain the number one source for satellite capacity, with 54 satellites planned, or forecast, over the next 10 years. However, that number is relatively stable when compared to the previous decade.
Growth is really coming from two new areas. In the next 10 years, emerging government space programs—that is, government programs in countries not previously equipped with satellite technology—will launch 53 satellites. That’s nearly one-third of non-meteorology satellites during that time and up from only 10. Countries such as Algeria, South Africa, Turkey, and Thailand, among many others, are launching their own programs.
The second area driving growth is the development of a true commercial sector, including private operators and capacity developed through Public-Private-Partnerships, with 29 such satellites to be launched during the 2007-2016 time frame.
Why are we seeing new countries investing in various space programs today?
They are really targeting operational objectives to meet local/regional needs such as disaster management, natural resource monitoring, and cartography. Earth Observation is frequently considered a natural first step towards the acquisition of satellite capabilities, due to its relative low cost (a few tens of millions of dollars) and concrete returns.
An interesting point, though, is these countries often do not simply procure a satellite but usually include a technology transfer program (including engineer training) to progressively develop local capabilities in satellite technology. European companies have been especially successful in taking advantage of these opportunities. For instance, the UK satellite manufacturer Surrey Satellite (SSTL) has delivered 50-kg satellites to countries such as Nigeria, Vietnam, and Turkey, coordinated through the Disaster Monitoring Constellation (DMC).
You mentioned the private sector. What does that look like today?
Contrary to 10 years ago, today there really is an emerging private sector, including non-governmental (EO) satellite operators and data distributors. This is especially true in the US, where significant government support enabled these companies to develop as is shown via the ClearView, and then Nextview contracts that were awarded by the Department of Defense National Geospatial-intelligence Agency (NGA). (In 2003-04, NextView provided $500 million in contracts, including funding to build capacity for next generation satellites).
The two private operators that ultimately emerged, Digital Globe and GeoEye, have succeeded in building world leadership in commercial data sales based on their high-resolution optical satellites. DigitalGlobe’s successful launch of WorldView-I in 2007 was the first of the two satellites using NextView funding, with GeoEye’s GeoEye-1 to follow in 2008. NextView then provides a mechanism for data delivery to the NGA.
This has not been duplicated outside the US, probably due to a lack of large government-backed contracts. But in Europe, we are seeing the development of a private sector through Public-Private-Partnerships. PPPs are increasingly attractive to mitigate risks between public and private sectors that develop commercial ventures.
There are currently two main PPP projects in the works. TerraSAR-X was launched in 2007 and was primarily funded by EADS Space and the German Space Agency (DLR). EADS Astrium Services subsidiary, Infoterra GmbH, is responsible for data commercialization. The RapidEye project is another good illustration. The 160 million euros, five satellite constellation (to be launched in 2008, 6.5-m resolution) is financed by a consortium including the DLR, local government agencies, and private investors. The company will be responsible for data sales and end services targeting the land-use sector (such as agriculture).
What are the incentives for private sector actors?
The incentive is clearly to sell data. Revenues from commercial data sales from private and public operators are estimated to be at $735 million in 2007 and have grown by a Compound Annual Growth Rate (CAGR) of 15 percent over the last five years. This growth has come from a sound government market as well as the development of products and services better tailored to private customers.
Governments are currently the primary market for EO data for both civil and military purposes with 80 percent+ of data purchase, in particular high-resolution data for defense and security, including routine monitoring and intelligence gathering in combination with dedicated military systems (as in the US). High-resolution commercial data suppliers are also experiencing success in exporting data to meet international governments’ requirements where a country simply doesn’t have satellite capacity of its own. Similarly, export data is likely to be used for military as well as civil government applications.
Virtual-globes such as GoogleEarth have given the data and service industry a boost, bringing awareness to EO capabilities to a previously untapped mass market. Such virtual globes are seen as a major driver within the industry as they offer a new web-based approach for data distribution. In 2007,
GoogleEarth surpassed 300 million registered users, based on unique downloads. This has given rise to a second type of customer: generic users often requiring lower value-added services.
These trends will support strong growth in data sales over the next ten years. Revenues from commercial data sales are forecast to increase to roughly $3 billion by 2017.
We see a real development in emerging space programs and development of a private sector. Where do the traditional established government programs fit in all this?
Established government programs are still the biggest part of the market, with a primary focus on environment and climate change missions—NASA, JAXA, and particularly the ESA, have clearly emphasized this fact. There has, however, been a paradigm shift in the type of mission, from expensive multi-instrument single satellites such as Terra (NASA), Adeos (JAXA) and Envisat (ESA), to more single-purpose missions. This is best demonstrated by the outline of missions planned through ESA’s rolling Earth Explorer missions and GMES Sentinels, with a number of missions planned over the next 10 years.
Established government actors are also participating in the data commercialization boom, with an eye toward maximizing return on investment. This is not entirely new—we saw the same with Landsat (NASA/USGS) data and then SPOT (CNES) in the 1980s, though data is used for operational services, rather than research activities, as it was in the past.
Government satellites are producing more commercially viable data due to higher ground resolution and re-visit times, which is increasing the number of government programs looking to commercialize data through dedicated entities such as the Indian Space Research Organization (ISRO) through Antrix; KARI, Taiwan, and CNES through the CNES-owned SPOT Image.
Finally, we are also beginning to see government military-civil, or dual-use, programs. Given the focus again on high-resolution data, these satellites also have commercial potential. With the completion of the four satellite COSMO-Skymed constellation in 2008, one meter radar will be commercially available at one day revisit time, with data sold commercially through Telespazio.
It is too early to tell which method for data commercialization will prevail—government commercial programs, dual-use, PPP and private companies—or, indeed, if this will vary by region.
This, then, is a real period of transformation within the Earth observation sector?
Absolutely. New private and public actors, and new business models are revealing a re-shaping of the value chain. With increased operators upstream, consolidation downstream, and increasing vertical penetration, the traditional EO value-chain is radically transforming. This kind of change creates both opportunities and challenges for market players.
Manufacturers, for example, are gradually moving down the value chain, particularly in Europe and Canada, in an effort to access the value added business. For example, EADS Astrium has service capabilities through its Infoterra subsidiary. EADS Astrium Services is also likely to become majority shareholder of SPOT Image (it currently controls 40 percent of the company’s shares) during 2008 and will take ownership control of the company from CNES.
MDA provides data and services through MDA Geospatial Services, formally Radarsat International and their service capabilities were recently bolstered by the acquisition of Vexcel Canada specializing in radar service solutions. Thales similarly has data and service provision capabilities through Telespazio, a joint venture with Finmeccanica.
As virtual globes become more advanced certain ‘basic’ services previously handled by specialized service companies (such as applications in cartography and infrastructure planning) could be made available through the platforms, which may encourage data companies to rethink their portfolios and distribution methods.
What else does the future hold?
The scenario of governments as primary customers for commercial Earth observation data (used mainly for defence purposes) is unlikely to change over the next 10 years. But with governments remaining stable anchor tenants, data providers will have the opportunity to develop commercial areas. Private operators are already diversifying their interests, with GeoEye and DigitalGlobe incorporating aerial data into their portfolios to provide complete geospatial solutions. Moves into the value-added market cannot be ruled out as part of a strategy to get closer to end-users. Furthermore, with government program (including emergent programs) satellites becoming more capable, there will be increasing efforts to find opportunities to commercialize data from these satellites.
Generally speaking, we are looking forward to a dynamic decade ahead: more satellites, different types of satellites, new actors in the private and public sectors, a changing value chain as established players expand their roles, and new technologies and distribution methods transform the sector, and growth in manufacturing and commercial data revenues. The only constant is change.
About the author
Adam is Senior Analyst for Earth observation and satellite services at Euroconsult. He is principal author for the report Satellite-Based Earth Observation, Market Prospects to 2017, and contributes to several other Euroconsult reports and consulting projects.