While a few high-profile companies have filed for bankruptcy in the last 12 months, overall, the satellite sector seems to have held up well under tough economic conditions that have created a recession that has spread around the globe.
“The State of the Satellite Industry Report,” issued by Futron for the Satellite Industry Association (SIA), looks at the performance of the satellite industry in 2008, and while those numbers cannot provide a true look at the impact of the recession, they still provide some interesting figures on the overall health of the satellite industry and show the strong fundamentals which underpin the satellite sector. Overall, worldwide industry growth was 19 percent from 2007 to 2008, compared with a 15 percent increase from 2006 to 2007. The satellite service market was particularly robust, generating $84 billion in revenues in 2008, up from $72.6 billion in 2007.
Other analysts also see strong growth in the sector. “Overall, revenues of FSS operators saw a revenue growth of around 10 percent in 2008 for an increase of 9 percent in capacity leased,” says Pacome Revillon, CEO of French satellite consultancy Euroconsult. “Our estimates for 2009 and 2010 correspond to a growth of capacity of around 6 percent and 5 percent, respectively. Compared to the global economic growth that should remain lower, relatively sustained demand for satellite capacity should support growth.” The Space Foundation’s “Space Report” says the global space economy grew nearly 2.5 per cent in 2008, rising to $257 billion in worldwide space revenues. The largest segments of the space economy were in commercial infrastructure and commercial satellite services, which together accounted for 67 percent of the total, compared to about 32 percent for government space spending. The largest growth sectors were space products and services, which grew 10.4 percent from $82.4 billion to $91 billion, with the majority of this attributed to DTH services, which generated $69.8 billion in 2008. FSS showed the strongest growth rate in the services sector, with revenue up 31 percent from $12.8 billion to $16.8 billion.
“The satellite industry has historically lagged the rest of the economy by at least 18 months in terms of feeling the effects of downturns such as we have been seeing recently, thus we would not expect to see negative news hitting the FSS marketplace until late this year — if at all. There have been some cancellations of video channels but also new starts, especially in the relatively new HD space, which only increases the demand for satellite capacity,” says Andrea Maleter, technical director, Futron Corp.
Maury Mechanick, counsel in the Washington, D.C. office of White & Case LLP, says, “On the one hand, it is hard to say that the FSS industry has been unaffected by the global economic downturn, given the well-publicized bankruptcies of ProtoStar, WorldSpace and DBSD (the company formerly known as ICO North America) and the related Sea Launch bankruptcy. Clearly, credit difficulties caused by the downturn have played a major role in those developments. At the same time, the major players in the industry do not appear to have suffered any significant harm from the downturn and indeed are continuing to report very attractive financial results. And when the number of number of new entrants poised to enter the fray in the next couple of years is taken into account, this further confirms the overall attractiveness of the satellite services marketplace.”
However, while most agree the industry is performing well, there are potential warning signs on the horizon that the economic crisis could ultimately have an impact. “The crisis, by impacting consumption, should progressively impact subscriptions to pay TV and even the adoption of telecom services. As such, demand of capacity in case of a long crisis could be impacted. As an example, the crisis could favor a consolidation process between part of the emerging satellite DTH pay-TV platforms,” says Revillon. Ultimately, it could be new system operators which suffer the most impact. “The first impact may be a higher difficulty in financing new satellite systems. While the financing of certain projects may have been expected earlier, several have not announced any significant new financing in the last six months. The Chapter 11 filing of ProtoStar may also be partly due to the difficulty to convince investors. In parallel, a larger involvement of credit agencies, particularly ExIm bank and Coface has been observed, and is certainly an evidence of the difficulty to raise funds otherwise,” he says.
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