Quality, Youth, Control: Keys To Success

By Jimmy Schaeffler

At a recent conference hosted by a large telecom company in Shanghai, China, The Carmel Group was asked to deliver a presentation on the topic “Telecom/Internet in The Year 2009.” The goal of the conference was to position the global company holding the event to seize opportunities, to overcome challenges and to navigate significant risks in future business decisions.

The same topic of key telecom and Internet trends is just as relevant to the future of satellite companies involved in telecom and Internet services.

Three key trends to track are quality, youth and control. “Quality” refers to the important technological advances achieved by satellite delivery of audio and video signals 10 years ago. “Youth” is a term used to emphasize that each successive generation becomes more comfortable with technology, and it surpasses the technical expertise of their predecessors. “Control” reflects the trend for users of technology to be able to use the bandwidth they need for applications whenever they choose.

Trend # 1: Quality

In a Satellite News article published three weeks ago, The Carmel Group mentioned “quality” as an extremely vital leap forward that moved transmission of audio/video signals from analog to digital. In turn, the video- and audio-transmission quality moved toward near perfect, all the time. In addition, the analog-to-digital switch created the related ability of one channel to be digitally compressed and thus to carry four, six, eight, 10 or more streams of video concurrently. Previously, just one channel could be transmitted.

Many of today’s adults grew up in an era of three over-the-air broadcast TV stations — in analog black-and-white transmission, often interrupted by “snow,” “ghosting” and an all-too-often complete loss of signal. Today’s kids are the recipients of crystal-clear video and Bose-quality Surround Sound. These developments not only carry the image and sound, but they envelop and engage the listener often more thoroughly than does real life.

Today’s semi-conductors are being commonly built to such precision and the delivery of signals is becoming so precise that such occurrences as “dropped calls” or “reboot required” will become increasingly rare. A recent article in The Wall Street Journal noted that today’s normal machinery commonly punches 16 chips per second onto a circuit board with a precision of five-hundredths of a millimeter, which is about the width of a few grains of pollen.

What this means is that more and more communications, connection and content will become available. More specifically, hybrid satellites and set-top boxes (STBs) capable of doing many different things need to be considered and reconsidered constantly.

To stay ahead of the competition, satellite needs to continue to push the message of competitive quality to consumers and to the industry, constantly seeking the “high ground” when this issue arises. Going forward, much of the cable industry’s bandwidth remains analog (and, thus, of poorer picture and sound quality). That lack of an all-digital service gives satellite a basic advantage in making significant strides in the areas of developing such new advanced services as digital video recorders (DVRs), interactive TV (iTV) and high- definition TV (HDTV). Cable will continue to lose subscribers to satellite providers as long as perceived quality lies on the side of companies like EchoStar [DISH], DirecTV [DTV] and the Voom service of Rainbow DBS.

Trend # 2: Youth

As savvy as today’s young people are – with their PDAs, instant messaging, CDs, TVs and PCs all running at the same time – future generations will easily top that. That’s simply a rule of life.

In fact, the next generation becomes more comfortable with new technologies than was the prior generation and, thus, more likely to use and develop these products and services.

As it relates specifically to satellite, newer generations inevitably will understand how to better next-generation STBs produced by companies such as Scientific Atlanta [SFA], Pioneer [PIO], Philips [PHG], Scopus and Thomson [TMS] better. These new STBs have become modified versions of PCs. Each has its own computer-flashing features of iTV, electronic program guides (EPGs) and other electronic features that take the hardware way beyond the mere “dumb box” with which prior generations grew up.

When designing these next-generation STBs, satellite providers should assume their future audience will understand and appreciate the value of such new components as iTV and DVRs. Much as DVRs were a quantum leap forward for the enjoyment and appreciation of audio and video, it is not too hard to imagine the next quantum leap that will populate a large percentage of almost 110 million TV households during the next few years ahead. And because of the now-typical savvy youth, more and more of the population will be there to embrace it, particularly if it works, if it provides more choice and if it is eminently affordable.

On an important and related note, future generations of youth-growing-older-and-consuming-more will have more and more disposable income. This means that they will be in an improved position to purchase and try out new devices, products and services. The DirecTV-National Football League (NFL) introduction in the mid-1990s of the NFL Sunday Ticket package is just such an example of a development that was readily embraced by a strong youth demographic. Most in the satellite industry can take a lesson from this example. Yet another core example involves video games — the future development and implementation of which will be led by the savvy youth of the world.

Trend # 3: Control

The third major trend influencing the future of the satellite industry involves the creation of additional layers of control on both the enterprise and consumer sides of the business. Arguably, this was one of a couple of core ingredients that spelled certain success for DirecTV against cable when the former was launched in 1994.

Control over hardware and software means not only choices against the competition, but also erring on the side of creating choices within the medium. Thus, instead of unveiling the next level of software and hardware with but a handful of packages or prices available, more and more pressure will fall on the shoulders of operators and developers to offer numerous choices, thus allowing mass audiences more control.

Satellite operators inevitably will fight great parts of this trend. Do not expect either satellite or cable operators to readily or quickly embrace a la carte, individualized channel and other software purchasing options in the years ahead – unless they can create unique ways to find revenue streams that replace the traditional ones.

For the satellite industry, this “choice” also will mean special demands on bandwidth because more choice and control inevitably suggest the need for more bandwidth within which to operate. Satellite operators constantly will be pushed to find and implement these new bandwidth opportunities. Just like land on the coast, there may be occasional downturns in the demand for bandwidth, but over the long term, there will be a constant and steady rise in the “coveting” of this asset. In the case of the satellite business, this means access to a big pipe that gets it all in and out from the consumer and enterprise; all around the globe; and certainly including huge, 1.5-billion people markets like the Republic of China in the year 2009.

Jimmy Schaeffler researches, analyzes and writes this monthly report. He is a subscription TV analyst at The Carmel Group, a conference organizer and publisher of industry databooks and the monthly newsletters DBS Investor and Satellite Radio Investor, and a consultancy based in Carmel-by-the-Sea, Calif. (http://www.carmelgroup.com). The company specializes broadly in telecommunications, computers and the media. He can be reached by e-mail at or by telephone at 831/643-2222.