2010 proved to be a solid year for the satellite sector during an economic pe riod that has curtailed many other business around the globe. Satellite companies remained active in all areas, introducing new business and growth initiatives that could prove noteworthy in the future.
Broadcasting Changes
2010 was the year that the momentum behind the move to 3-D TV became overwhelming. The push began in the first week of January, with initiatives unveiled by ESPN, DirecTV and Discovery that would make them the early leaders in bringing 3-D TV to audiences throughout the United States. “Myself and a number of my colleagues believe this is going to be a very important space for ESPN,” Chuck Pagano, executive vice president, technology, ESPN, said in January. “We think live events will play a key role for 3-D TV. It is a new way of telling the story and reaching audiences that are intrigued by this new way of watching a story unfold.” ESPN launched its 3-D channel in June with coverage of the World Cup and is on pace to produce 100 events in its first year of operations, but Anthony Bailey, vice president, emerging technology for ESPN, says, “This is still a science experiment, and we are still learning.” BSkyB launched its 3-D channel to U.K. audiences in October, and other satellite pay-TV operators such as Sky Deutschland and Foxtel (Australia) also launched 3-D channels before the end of the year.
SES World Skies took the lead on the satellite operator side, launching an effort in April to work with broadcasters, programmers, TV manufacturers and technology providers in a series of tests aimed at accelerating the delivery of 3-D TV. The effort includes eight areas of the value chain, from content production to acquisition to programmers. “SES put together a test platform for the rest of the chain to simulate all methods and standards,” Alan Young, CTO of SES World Skies, says. “It’s easy to produce 3-D content. It’s hard to do it well. It’s impossible to be perfect. It’s not as simple as 3-D needs ‘x’ times more bandwidth than HD. It can turn into bad 3-D by overcompressing it. … The level of standards is the real problem. Industry needs to get together to figure out common standards, and the sooner the better.”
While 3-D TV dominated the headlines in 2010, the reality is that in many markets around the globe, HD penetration remains low, and in some countries, there is very limited amounts of HD content available. For many pay-TV operators around the world, the focus is on expanding HD offerings and searching for a way to convert this into revenue rather than rush into the 3-D market.
Business Expansion
Marked by a resurgence in financing and debt markets, 2010 generated favorable market conditions for satellite companies looking to finance new ventures. “There has been $5.7 billion raised in the high-yield market since the market crashed two years ago,” says Fred Turpin, managing director, JP Morgan. “Intelsat has done two issues, for example. The high-yield market has become substantially healthier. Over the course of the recovery, investors have got more excited about the satellite industry. The satellite high-yield market is 50 percent better then the actual market today. People have been willing to come back. The market has improved. … Certainly, for satellite operators, there are also a wide variety of options for financing. It is a good time to raise additional capital or refinance debt. The index is very attractive for new financing/issuers, however, the markets are not as deep as they were a few years ago. The conditions are exceptionally good right now. Markets are very focused on liquidity.”
The improving financial environment also provided satellite players with a greater range of options for funding ambitious projects. Export credit agency (ECA) financing has become increasingly fashionable, and among the companies taking advantage of these offerings within the last year were: Inmarsat, which completed a credit facility from the European Investment Bank to build the Alphasat satellite; Hughes, which will use Coface funding to finance up to 85 percent of the launch of the Jupiter satellite aboard an Ariane 5 rocket; Iridium Communications which awarded a contract to Thales Alenia Space for the design and construction of satellites for the Iridium Next constellation after Iridium secured financing through Coface; and Russia’s Gazprom Space Systems and Russian Satellite Communications Co. also are dipping into the ECA market to finance new spacecraft. “Before the [economic] crisis, ECA financing was for emerging markets,” says Philippe-Olivier Rousseau, a senior banker for BNP Paribas. “Then ECA has opened up to new opportunities in the industry. There has been a cultural shift. In the past three years, ECA became a great contributor to overall financing.”
The takeaway for the satellite sector is that its performance through the worst economic environment in the past several decades has impressed the investment world. “Investors like the satellite sector. It is something they have gotten comfortable with no matter what the times,” says Omar Jaffrey, managing director and head of satellite at UBS. “The satellite sector has proven itself to be reasonably resilient to economic swings. … As the markets dislocated, everybody suffered, but as they came back, the strongest benefit was to the satellite sector.”
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