Arqiva, the U.K.-based communications infrastructure and media services company, hopes to bounce back after a tough 2010. The company has combined its terrestrial and satellite units, as it looks to streamline the sales process.
“We brought the terrestrial broadcast and satellite broadcast businesses together at the beginning of October, which made a lot of sense, as our broadcast customers face many of the same challenges whichever network they are on,” says Nick Thompson, managing director, Arqiva Broadcast and Media. Thompson admits that with a recession and a weakening pound affecting operations, it may be a while before Arqiva returns to growth, but he is optimistic that the long-term foundations are in place to build a stronger business.
VIA SATELLITE: Are you expecting to see an increase in revenues and profits for the satellite business in 2010, and if so, what have been the major growth drivers?
Thompson: We achieved growth in the financial year ending June 2010. Our largest customers are growing and we are expanding the services offered to them. The U.K. DTH platform is our single biggest product in the satellite business, where we run 22 transponders, and where it’s been a challenging environment for some smaller channels and there have been some casualties.
VIA SATELLITE: Which of your customers have been affected by the economy?
Thompson: Some of the smaller broadcasters that are heavily reliant on transaction-based services have struggled during the recession. In addition, the net number of new channels on the Sky platform has been flat for probably around 18 months. Although many of the tier one broadcasters are switching to HD channels, what they are doing is either adding to what they have already got or, in many cases, working directly with Sky in the early stages. I think the whole industry has noted that some of the niche channels, particularly those without well-resourced parents, have had a pretty tough time. Arqiva is not alone in seeing that.
VIA SATELLITE: How have falling advertising revenues affected Arqiva and its broadcasting business?
Thompson: What has gone against the U.K. market has been the significant weakening of the pound, bearing in mind that most of the satellite industry operates in euros and dollars. At Arqiva, we have had to constantly look at our pricing in the market, but we’re now seeing some customers expand, so there are winners as well as losers in the market.
VIA SATELLITE: When do you expect to return to growth?
Thompson: A lot of our larger and better-resourced broadcasters are expanding, so certain parts of the market are growing while others are static or in decline. Actually you can look at growth several ways. For instance, a number of our satellite customers are growing in geographic reach or in the number of services they are providing in the United Kingdom. That is good, and will I think continue. More difficult questions hang over some of the industry’s smaller and less well-resourced players: At what point will they stabilize, to what extent will recovery come from advertising or transactional services, and when will people start spending again to fuel their return to growth?
VIA SATELLITE: What is the trend in the SD business?
Thompson: SD is still the bread and butter for a number of channel operators. After all, the U.K.’s national DTT network is predominantly SD, and the Sky platform is still significantly SD in terms of number of channels. But the new channels are all coming out in HD, with no growth in SD channels on the [electronic programming guide] for over a year. I think the switch to MPEG-4/DVB-S2 will enable broadcasters to decide if they want to run SD at 3 Mbps in MPEG-2 while originating in HD, so that the content is acquired at a much higher quality base point. Right now, I think SD equals MPEG-2 and HD equals MPEG-4, but once the network is upgraded, I think SD will continue within an MPEG-4 environment with the benefit of a better quality of originated signal. The bottom line is that SD services will continue for some time yet.
VIA SATELLITE: Are HD channels more profitable?
Thompson: HD is an uplink and a space proposition, sold by the megabit, so if a broadcaster wants to run a 1.4 Mbps or 3 Mbps in traditional SD, one is twice the price of the other. It is a simple multiplier. Likewise, if you move into HD, you are using a lot more capacity, although there are some bandwidth savings with MPEG-4/DVB-S2. With a 15 to 20 Mbps HD service for instance, you can run in a lower throughput. At the end of the day, we are slicing up the transponder, and we are trying to get the same return on that capacity. HD will always be fundamentally more expensive, because you are using more capacity.
VIA SATELLITE: What does growth in 3-D TV mean for Arqiva?
Thompson: In its crudest form, it means more bandwidth. At the moment, there is very little in the way of standards, with major platforms such as BSkyB setting its own requirements on the amount of capacity to use. Currently, this means a higher bit rate than HD, so for Arqiva this has to be good news.
I think the real challenge with 3-D compared to HD is, ultimately, the number of TVs that will be deployed over the next few years. Personally, I think there will be less 3-D TV take-up than some market analysts believe, and I don’t think I am alone in that view. It is likely to be an events-driven market, and we are already transmitting 3-D TV into a deployed network for digital cinema, where 3-D TV has been the main driver for cinemas to throw away their old analog systems and put in new digital projectors.
VIA SATELLITE: Why was Arqiva’s business restructured?
Thompson: With the old structure, Arqiva’s operation of the U.K.’s national terrestrial television and radio network and provision of satellite services were organized into two separate businesses. However, it soon became clear that all of the terrestrial customers were also customers of our satellite business for playout services, and in many cases, we were dealing with the same individual within an organization in two different parts of the business. From the customer side, I think you will see a slightly more joined-up Arqiva. From Arqiva’s perspective, I hope we can get the right products in front of them.
VIA SATELLITE: Is there an example of this streamlining?
Thompson: Playout is a good example. It is quite a complex product to sell. It is virtually a craft-based product and, consequently, may be a more daunting sales proposition for somebody used to selling a national terrestrial network for example. With more potential for cross training, we can rationalize who is dealing with the BBC or Discovery rather than have two or three different contact points. This gives the sales force the product tools and product knowledge they need to do a better job, and I am convinced it will improve the way Arqiva looks to the customer base.
VIA SATELLITE: Why was this not done sooner?
Thompson: The satellite business was consolidated in 2007, and we completed a major acquisition at that time as well. There were also obligations for each business to be held separately until the regulator had cleared the deal. We always knew that integrating the two would be a massive undertaking, but I think we have just about got to a place where we could take another look at it and say, “This makes more sense.” I think this was the right time to make the decision. I don’t think we have wasted opportunities by following the timetable we did.
VIA SATELLITE: Does digital cinema have long-term revenue potential?
Thompson: Over the last 12 to18 months, the credit crisis prevented cinemas from borrowing the finance to install new equipment, but now various financial institutions are starting to put cash behind the big exhibitors, and this is filtering through to the smaller cinemas so they can actually borrow against buying digital projector systems and then pay for them over time.
It’s a relatively new area for us but one that will grow. Arqiva is keen to see this happen and has been instrumental in pushing the boundaries. Over the last two years, we have worked with both sides of the industry to help both the exhibitor and studio/distribution sectors to develop a financially viable model that works. Of course, we then had a recession dropped into the middle of it all, which slowed us down, but I think as a future long-term revenue stream it will be quite an interesting one. It dovetails nicely into our occasional use business, because these big events have to be distributed and captured as well. It opens up some real opportunities for cinemas themselves, as an auditorium with around 200 seats is quite a valuable asset that can be used in different ways for other events and to generate additional income. Digital cinema gives exhibitors the chance to move films around much more easily or stage alternative entertainment such as live events, theme nights and so on.
VIA SATELLITE: What is the state of the SNG market?
Thompson: We run our SNG business as part of our occasional use business, and right now, we are bringing all of our outside broadcast businesses together so that they become more of an integrated business unit. The events side and forecasted contracted business remains pretty healthy, along with the breaking news events side. I think we have been quite careful to maintain a reasonably modest fleet for the on-demand activity and have never over-built. To say that it has been a steady business almost downplays it. It has been very busy with year-on-year growth since I joined the company in 2005. It is also a flagship business for us, because it means trucks and equipment appear at major global events such as G8 or a major sporting tournament. It gets your branding right there in front of the consumer. It is a pretty good market for us.
VIA SATELLITE: Could you sell your broadcast video-on-demand (VoD) technology to satellite players?
Thompson: Our own on-demand operation, SeeSaw, is part of the broadcast media portfolio, and we will continue to drive that forward. That is a new market for Arqiva, as this is a consumer-facing space, so we are learning some new skills as we go. Certainly, the technology we have built is a pretty robust back office engine that does a lot of things very well, indeed, and we are talking to a number of broadcast partners about how we can extend this. We have also looked at various technologies that would enable a cost-effective solution over satellite. It is too early to say what we might end up doing, but the concept of a demand or push-based VoD service over satellite is there. We are already doing it with digital cinema and video ads on the London underground, and the concept of pushing this to the home is not significantly different. As an opportunity within the satellite space, we continue to look at it.
VIA SATELLITE: Are you targeting any new market in 2011?
Thompson: We will certainly find some new areas for 2011. At the moment, we are focused on this current round of integration. These things do take time to do properly, but once we get through 2011 we will start to focus on some new areas. There are a number of things that are still very embryonic such as digital cinema, which has plenty of room to grow. The world of IP continues to roll out in front of us, so we will look to see how we can exploit the opportunities that this brings to us, both in terms of DTT as well as on the satellite network. We have plenty to keep us busy.
VIA SATELLITE: Are there any regions where you are looking to exploit more in 2011?
Thompson: We have teleport facilities in Washington DC, Los Angeles as well as Paris, and our U.S. operation continues to evolve. If you look at our customers in Europe, there are a lot of tier one U.S. broadcasters, so having a presence in both North America and Europe is very helpful. As an international bridge to take their content from the United States to the United Kingdom and into Europe and even for further distribution, it is quite important to have the presence we have. I think taking content from Europe and sending it back the other way is important as well. We will continue to grow, and I think 2011 will be quite an interesting year in this respect.
VIA SATELLITE: Has North America been tougher then you anticipated?
Thompson: We were certainly under no illusions when we entered the market. It was a tactical move. Our relationships with the U.S. tier one players have always been very good, and this has been enhanced by having an operation in the United States. It has been steady forward growth through these operations. We are pleased with our progress there so far, and it has been a good strategic move.
