Pace CEO Expects Good Year In Satellite

Pace Micro Technology [PACE.L] is on an upward curve. The company, which is one of the leading suppliers of digital STBs to satellite, cable and terrestrial operators around the world, announced in its most recent results that it had returned to profitability after a difficult couple of years. The company, which supplies STBs to such pay-TV satellite operators as BSkyB (BSY.L), Foxtel (Australia) and Premiere (Germany) among others hopes it will continue this trend this year. According to Pace CEO John Dyson, the company is performing particularly strongly in the satellite sector so far this year. He told Satellite News, “Our business changes from year to year. Some years, we do a lot more business in satellite. Other years, it is more cable. It depends on who is doing well at any point in time. This year, satellite is doing well for us. In the United States, cable will do better for us because we don’t have a presence with EchoStar [DISH] or DirecTV. We will continue to strive hard.”

Pursuing Deals

Even while pursuing deals in North America with EchoStar and DirecTV, this is likely to prove a tough market for the company to crack. In fact, in terms of North America, improving its market position here is one of its top priorities. Dyson commented, “We hope [our operations in the United States] will become profitable in 2005. It is the biggest market in the world. We will continue to work hard to get ourselves into profit. Our Number One priority is to please our customers, and our Number Two priority is to get the United States into profit.”

In terms of how it sees the U.S. market developing, Dyson said, “In the United States, our main offering is the HD (High-Definition) box, which is shipping in quite decent volumes. It is still not high enough and our customers are primarily Time Warner and Comcast. There are a few others, but they are by the far the biggest cable companies in the United States. But our market share is very small in comparison to the market leaders, which are Scientific Atlanta [SFA] and Motorola [MOT]. We think that the market in the United States will become predominantly HD and PVR going forward.”

The situation in Europe is more fragmented, due to the different market dynamics from country to country. In terms of focus areas, the company is looking at boosting its position in terms of DVR (Digital Video Recorder) and HD. While the U.S. market for DVRs has shown some explosive growth in recent times, in many countries in Europe, there are no DVR offers in the marketplace at all. This represents a massive opportunity for a company like Pace. In Europe, in terms of DVR, BSkyB has led the way in terms of an offer. Its Sky+ offer is beginning to see impressive growth, particularly after it waived monthly subscription charges to premium customers.

Dyson expects the drive toward increased DVR penetration to accelerate still further in 2004. He said, “Our view on the PVR/DVR is that it will proliferate over the course of time, and it will be the first box in everyone’s home. It is clearly the box that subscribers prefer. For this to happen, more costs have to come out of the box because at the moment if you look at the Sky offering, you pay $362.30 on your regular offering. That seems to be a price point which early adopters are broadly willing to pay. To get more mass penetration, we have to find a way of driving those costs down a bit more.”

High Definition’s Role

Another area where the company looks to play a role is in terms of bringing out HD STBs. Dyson admitted that, in terms of its own internal research and development, the main priorities were ‘lower cost PVR and HD.’ While the DVR drive in Europe already is noticeable in such markets as the U.K. and France, the move to HD has been a little slower. In terms of HD, Dyson believes Europe could do well to learn some of the lessons from the United States, where the amount of HD programming is increasing significantly.

“We have been very complacent about the quality of our television compared to the United States. The United States has now got HD, and it needed some pretty firm direction from the FCC to overcome the chicken-and-egg situation, which is ‘I am not going to be able to sell any STBs, TVs if there is no content and the content people saying we are not going to do any content if there is no way people can receive them,'” Dyson commented. “The FCC put some pretty firm encouragement in place that the broadcasters must broadcast in HD. Over the last three or four years, we have now reached the point where there will be more HDTV sold in the United States than SD for the first time.”

European Market

While Europe may be lagging behind the United States in terms of HD, Dyson still is optimistic that HD will begin to make an impact during the next couple of years.

“Our view is that you can’t get back the genie back in the bottle. Films will be largely made in HD going forward, so you will be buying DVDs in HD. I think you will see people to start to broadcast in HD in Europe over the next two years,” he said. “It is a process. I would be very surprised if it took less than three years from today before we see much in the way of HD, but there is no question in my mind that HD will become the predominant technology over the next five years.”

–Mark Holmes

Contact: Amanda Duffield, Pace Micro Technology, email: [email protected].