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INSIGHT... Going Beyond Sat Pay-TV Platforms... Video Demands It!
by Pacôme Revillon, Managing Director, Euroconsult

While DTH pay-TV platforms represent a key market for satellite operators, a large part of demand for video distribution is also driven by other applications. Two particularly noteworthy applications are free-to-air satellite broadcasting and distribution of video services to terrestrial system head-ends (e.g. cable, towers, DSL and fiber). Together these related markets represented over 7,500 channels broadcast in 2007, approximately 41 percent of all channels broadcast by satellite. In the last five years, this number increased by an average of 15 percent per year. In addition, it has brought and continues to bring a number of innovations that will support growth in the coming years.

Satellite free-to-air broadcasting entrenched and even growing in a number of markets
Even before the emergence of satellite pay-TV, satellite broadcasting was used in a number of countries to provide leading terrestrial channels on a national scale. This was the case in France, Germany, and Japan, to name a few examples. While the satellite has maintained this role over time, it has also seen its position expand greatly. One example is the role of satellite as the primary growth driver for digital TV in the Middle East and North Africa (MENA), where roughly 900 channels were broadcast free-to-air in the region in early 2007 as compared to only 275 channels in 2003.

Several important innovations underpin growth of free-to-air viewing. First, the decrease in the cost of digital set-top-boxes over the last few years is a key factor, as it has allowed the introduction of digital free-to-air services for a low initial cost for the viewer.

The introduction of digital terrestrial television (DTT) has also resulted in the launch of a number of new channels to optimize coverage. As the DTT roll out continues in an increasing number of markets, a rebroadcast of channels, in either standard or high definition, can be expected.

Furthermore, following a first wave of initiatives in the 90s, a new wave of multichannel digital services introduction by public broadcasters is currently under way. Two primary examples of that strategy can be found in India, where the public broadcaster Doordarshan launched the DD Direct Plus free-to-air platform in 2004. The 30-channel platform currently claims to have 700,000 terminals installed in the country. In the UK, the BBC has been working on the launch of its Freesat platform planned for spring of 2008, which is expected to be instrumental in the introduction of free-to-air high definition TV in the country.

Finally, the development of multiplexes by specialized companies has also been an important factor behind the growth of free-to-air satellite TV. By sharing and optimizing transmission costs, these groupings of channels facilitate the launch of new, free-to-air services. While the share of channel broadcast through multiplexes was approximately 60 percent in 2000, it now stands at more than 75 percent, a share that continues to increase by roughly 2 percent per year.

The distribution of TV channels to terrestrial networks strongly increases
The digitization of cable systems throughout the world, as well as the introduction of IPTV services over cable or fiber networks, is supporting growth in demand of satellite capacity for the distribution of TV channels. While a few markets, including North America, Japan, and several European countries, have largely progressed in their transition of terrestrial networks to digital services, this process is still nascent in most emerging regions. At the same time, the combination of an increasing number of channels and the strategy of many/most satellite TV platforms to offer a wide choice of content is pushing terrestrial players to enrich their channel line-up.

For most channels seeking international distribution, satellite remains the most efficient tool for reaching an array of terrestrial head-ends. Large satellite footprints and the high quality of video transmissions can help optimize distribution costs.

The concept of head-ends in the sky (HITS), which was primarily developed in the US, has been introduced in a number of other regions with some success. Beyond the simple ability to carry signals, the branding of HITS in a number of markets has become a marketing tool for satellite operators. For example, Eutelsat, which previously had limited activity in the German market, pushed its Kabelkiosk service dedicated to [German] cable networks to increase its presence. The platform currently carries 60 channels. In Japan, the operator SCC, which recently announced its merger with SkyPerfecTV, created a HITS platform to develop its market share following the loss of the DirecTV Japan DTH platform in the late 90s. In the US, SES Americom and Intelsat created concepts extending HITS by offering end-to-end solutions to aspiring IPTV providers in the US market.

Worth noting, however, is the issue of lower fees paid by broadcasters for the carriage of capacity. As opposed to DTH broadcasting, distribution to cable head-ends does not offer access to the final customer. Changing distribution from one orbital position to another would be less complex, and only involve re-pointing the limited number of antennas pointed at the satellite (which may number only in the hundreds). As a result, the market remains more “liquid”, with greater competition between operators and lower capacity prices.

Initiatives from operators to offer end-to-end solutions for aspiring IPTV operators in the US may not be easily to replicate elsewhere.

Leading satellite operators Intelsat and SES Americom created the Ambiage and IP-Prime services in the US to target the emerging market of IPTV providers. As opposed to the traditional carriage of signals to cable head-ends, the new services aim at providing end-to-end solutions, including the management of transmission, MPEG-4 encryption, and so on.

These offerings primarily target second tier telecom operators in rural areas, which otherwise could not afford to invest in the platform required to launch an IPTV service. The two operators, who initiated their commercial services last year, claim to already have several hundred channels signed onboard. It is important to point out that while most direct-to-home (DTH) services are provided in Ku-band, the emerging IPTV delivery market is offered in C-band, and thus offers a relay of growth to satellite capacities in that frequency band.

By comparison, there are only a very limited number of national markets where IPTV is currently taking off and where the telecom market is as fragmented as in the US. So far, a comparable initiative has not been observed in other regions. Nevertheless, if the two operators succeed in the US market, there may be attempts to reproduce the model elsewhere, likely in combination with efforts currently dedicated to distribution to cable networks.

Positive growth drivers for the coming years
Growth in the number of satellite TV channels broadcast will continue to be largely driven by the expansion of terrestrial digital offerings and by the overall increase in the number of TV channels available. Overall satellite TV market growth will likely continue to occur at a rate comparable to the increase of channels broadcast by satellite.

Future cooperation agreements between satellite TV platforms and telecom operators and direct investment of telecom and cable operators in satellite services will contribute to growth. These agreements will result in the carriage of at least a comparable number of channels on satellite and terrestrial networks and likely favor an increase in the number of channels delivered by satellite.

In addition, the increasing number of households receiving digital TV will grow the addressable market and will likely support an overall increase in the number of international and local channels… which wil,l for the most part, be broadcast by satellite, either for direct or indirect distribution.

While overall industry growth will continue (at a CAGR of approximately 7 percent) and a number of positive growth drivers remain present, we can expect a progressive slowdown in the number of channels added over the next ten years growth, as a number of markets begin to mature and historical channels strive to optimize their profit margins.

Author Biography
Pacôme Revillon is Managing Director of Euroconsult, a leading international research and analyst firm specialized in satellite communications and broadcasting with over 560 clients in 50 countries. Before assuming his current position in 2003, Pacome spent several years as analyst and consultant at Euroconsult, with a specialization in satellite communications, TV broadcasting and financial analysis.

Pacome has contributed 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, with primarily the Satellite Communications and Broadcasting Markets Survey, Ten Year Outlook; the Satellite TV Platforms, World Survey and Prospects to 2015; HDTV in Europe, key Economics and Prospects to 2015 and World Mobile Satellite Communications Market Survey, Prospects to 2016. The reports are used as reference tools to support strategic decision by more than three hundred leading companies worldwide.