No. 8, Spring/Summer 2002
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"The Good, the Bad, and the Ugly"

Chris Forrester reports on new technology developments from the Satellite 2002 conference in Washington.

"Consolidation is Inevitable"

Small, regional and national satellite operators have little or no future, according to one of the major satellite consolidators. Giuliano Berretta, CEO of Paris-based Eutelsat, says satellite consolidation is not just about merging satellite operators but will increasingly affect broadcast platforms.

"We have just seen a fusion between two rival platforms in Poland, and we will see another shortly in Italian pay-TV. There is also a major crisis in Germany with Premiere World. It is a bad sign when we see [operator's clients] suffering, and consolidating. As they consolidate, they need less capacity. As for the free-to-air TV sector there has been a shrinking in advertising and broadcaster's share prices have been hit hard. But when you get to the bottom you can only move up, and I see an increase in demand over the next 12 months."

Berretta said that he saw broadband services playing their part in this expansion. "If DTH broadcasters don't supply broadband they will lose out to cable," he said. "They need to provide not only pay-TV but broadband." He suggests that broadband profits, for broadcasters and operators, might be low at first. "Broadband is an essential part of the mix, and will be necessary if DTH operators want to keep churn to a minimum."

He described broadband as a phenomenon and the subject of a great deal of talk "for too many years." He is of the opinion that Ku-band's exploitation of two-way broadband is now very close, with lower-cost terminals now in sight. "They are now below the $1000 mark, and the next target is to see prices fall to below $500. Then we will see viable take-up." He said one-way broadband receivers are now widely available at below $100.

As for satellite operators, Berretta says the consolidation process the industry has seen this past year or two will definitely continue, in his opinion, and start affecting middle-sized companies. "But I don't think consolidation will affect very small operators, because who would want to buy them?" he asked. "They are already in bad shape, and few larger operators would want to buy some of these very small, usually national, players."

He mentioned no names, but it is well known that some regional satellite operators are facing cash and utilization pressures. These include satellite operators serving the Middle East, and many of the Far East national players.

Berretta added that some operators managing just one or two satellites will come under increased commercial pressures, and hinted that most of the larger players had seen a stream of satellites on offer, "but they frequently have a negative EBITDA, or very low revenues, and I think they will simply cease operations."

Berretta said Eutelsat remains optimistic about its future. It will be launching five satellites this year, he said, and added that each of them has a detailed business plan as to where its business will be coming from. TBS

-Chris Forrester

As usual, the Satellite 2002 conference in Washington this March recounted the events of the past year or so in the industry, but this year's event was dominated by discussion on and about broadband-by-satellite and was described by Steve Blum, president of Tellus Ventures, as "The good, the bad and the ugly." The good news, he said, was some clear signs that the DBS (direct broadcast satellite) consolidation was not limited solely to the United States, but was extending to other DTH ventures in Europe and elsewhere. Blum's view was that the Echostar and DirecTV outfits would successfully merge, although other speakers put the likelihood of a successful DBS merger for the US at no higher than 20-25%. However, there was an overwhelming consensus from delegates that Charlie Ergen, Echostar's CEO, was in a win-win situation whatever the outcome.

"Echostar is ahead of DirecTV in winning new subs, and in its policy regarding interactivity. It is also more aggressive, and I am impressed with their attitude to High-Definition and to new Personal Video Player-makers like Moxi, which is being integrated on Echostar's DiSH-branded high-end satellite receiver units." Even if he loses, Blum said Ergen will have successfully sidelined DirecTV for the best part of a year. Blum predicted that the US satellite DBS industry will be touching 35m homes by 2010. He said that adding local city channels to the DBS mix of pay-TV services was "making a real difference" in take-up.

Blum's comments were echoed by fellow-panellist Sean Badding, VP at specialist consultancy The Carmel Group, who placed the Echostar/DirecTV at the top of his "hot" list of industry topics. He suggested that DirecTV was also suffering because of high piracy levels, which he placed at a conservative 700,000 users "and it could be 1 million homes." He suggested that the market's growing interest in interactive television would help curb piracy, with would-be users of iTV services forced to have a legitimate subscription.

Badding's full list of hot-to-cold highlighted topics were:

HOT: the DBS merger in the US
HOT: Sat. radio: "demographics are looking good"
WARM to hot: DVR/PVRs "they are the industry's 'sweet spot'"
WARM: iTV
WARM: Sat broadband: "it WILL turn around in rural areas"
COLD: Ka-band exploitation
COLD: Sat. phones: "We've seen the worst but niches will survive"

While not being entirely pessimistic about the prospects of broadband-by-satellite, Blum nevertheless cited some unpalatable arguments and suggested that few current players would survive. "Many services have been in the market for five years or so and have yet to take off," said Blum. He specifically mentioned WildBlue, AstroLink, CyberStar, and Spacebridge as examples. The dilemma, he said, was the generally accepted figure that service operators needed to hit the 15,000-20,000 users per transponder to make commercial sense. Unfortunately, he said, "StarBand and DirecWay by all accounts are not coming close to that target." The main dilemma faced by the sector was that the moment any streaming video was drawn down, the customer's bandwidth demands grew to around 200 kbps and in doing so "killed the model."

Blum was also bullish about the US' DARS radio services (XM Radio and Sirius). He said despite the modest number (30,000) of XM's sales (to January), the demographics were much better than expected with 80% of buyers based in urban areas, where one might have thought they were already well-served by local broadcasts (and already skewing well past the normal in-car entertainment system buyers), while 24% of buyers were also 50+ years old. Blum's forecasts saw 8.7m subs in place by 2005. He argued his corner by suggesting that XM's numbers were achieved with a very limited distribution of about 10% of the US, and achieved over a very limited time-scale. On this basis alone, he suggested that by the end of 2002 the two players could achieve "an upper-six-figure total" of subscribers.

Bear Stearns senior analyst Robert Peck was more cautious on DARS, not in suggesting that either operator would fail but in comparing them to what he described as "binary stocks": "They'll either enjoy a multiple of a tenfold increase [in stock price], or fail!" Other bankers and analysts put in their two cents worth, with ABN-Amro's Thomas Watts saying unambiguously that in his view satellite radio is going to be the "next DBS." Carmel Group's Jimmy Schaeffler berated delegates for having any doubts at all on the prospects for DARS, saying that the sector enjoyed a high 8 out of 10 on his "no-brainer" index of probable success.

EuroConsult's chief analyst Stephane Chenard also threw his hat into the DARS ring, reminding delegates that 10 years ago the US multi-channel market cruelly dubbed DBS as "Don't Be Stupid," and suggesting DARS might well have the same breath-taking result. On the topic of DBS he stated: "We now know how wrong they were. However, it still took some six years to become a success. It is a success not just in rural areas but a success in urban areas." He argued that he saw real expansion in the DBS/DTH sector helped by "increased efficiencies and better digital compression ratios."

As part of EuroConsult's monitoring, he said that historically every time a TV-based transponder was vacated there was a replacement demand equal to about 1.3 transponders. Chenard also cited CableVision's [US] plans to launch "MagRak," a 40-channel bouquet of new channels based on magazine products, later this year. "There could be thousands of new channels launched based on a larger market base, increased competition [between platforms], and lower costs to entry." TBS

Copyright 2002 Transnational Broadcasting Studies
TBS is published by the Adham Center for Television Journalism, the American University in Cairo
E-mail: TBS@aucegypt.edu