Philips Hopes To Exploit Satellite Opportunities

Philips Consumer Electronics [NYSE: PHG], the Dutch-based electronics manufacturer, hopes to take advantage of the consolidation in satellite pay-TV markets across Europe to provide better products and services to its customers.

Lucas Covers, a senior vice president at Philips, told SATELLITE NEWS: “We believe [consolidation] brings benefits, as previously we had been confronted with a very fragmented market in a digital world. We dealt with numerous different customers and different solutions in terms of providing digital services. We see now, with the consolidation of the pay-TV operators, the economies of scale start to add to the whole story, which is good for the operators themselves, because the operator gets a better offer from his key suppliers. We are able to have more efficiencies when we work with a global operator or an operator with higher economies of scale.”

DVR Prospects

One area where the company hopes to make more of an impact is in the digital video recorder (DVR) space. With operators such as BSkyB in the UK, and TPS and Canal Satellite in France, already offering DVR services, the market could be set to increase significantly over the next couple of years. “We are working on roadmaps that we can develop with our key satellite customers. Personal video recorders/hard disk solutions are an integral part of that model. A TiVo [Nasdaq: TIVO] combination within a digital receiver from Philips is already on the market with DirecTV and TiVo. We are planning with other pay-TV operators to roll out these products. They also have to come to grips with the technology they want to select to rollout these types of products. From a technology solutions perspective, we are ready to go with this type of hardware.”

The changing dynamics involving News Corp [NYSE: NWS] could also present opportunities. News Corp, through its ownership of Sky Italia, is expected to invigorate the Italian pay-TV market and is likely to become a key player in the United States through its acquisition of DirecTV’s parent company Hughes Electronics [NYSE: GMH].

Covers observed that DirecTV and News Corp “are making plans and initiatives to utilize the efficiencies they will bring. You also see Sky Italia coming up and we signed a [memorandum of understanding] with them earlier this year. We are looking to launch our products in their environment. The solutions for such an operator are also solutions that are equally applicable to other countries and other entities.”

Satellite remains a growth market for Philips in Europe, although Covers concedes this could change in the near future. “Satellite is still a bigger growth market in Europe than cable is today. However, you have to look at the potential. Cable, which has high penetration in a few countries, has the potential to grow very fast. What you see now is that a few of these companies have come to grips with the type of technology, type of product, the business models they have to roll out. You have seen recently Essent in Holland, the cable company, rolling out a very basic functionality of digital video.”

One of the main opportunities for the company will be in the area of multimedia home platforms (MHP). A number of satellite pay-TV operators could look to implement MHP set-top boxes (STBs) as they aim to boost interactive revenues.

Paul Geurten, a senior business manager at Philips, told SATELLITE NEWS: “We have launched satellite MHP in Germany. We are looking at introducing that in a number of other countries as well … We expect to be in the Scandinavian countries next year. Those are the main two areas we are focusing on for satellite MHP. There will be smaller opportunities in other countries, but these are the main ones — Nordics, Germany, Austria.”

He continued: “The content for MHP is now starting to come. You see more manufacturers coming with MHP-based satellite boxes. Digital is selling more than analog in Germany in terms of satellite boxes.”

Geurten believes there will be a snowball effect in Europe in terms of MHP. “By 2006, we expect more than 10 million MHP devices will be installed. That could be on the low side if you look at countries like Italy, where the parliament has basically approved the analog switch-off by the end of 2007. The Lower House has approved a kind of MHP subsidy so that boxes can be deployed faster into the country. Our view is that by 2006, 50 percent of the yearly FTA [free-to-air] sales in Europe will be MHP based.” –Mark Holmes

(Monica Mulkens, Philips, e-mail: [email protected])

Showtime, the leading satellite pay-TV operator in the Middle East, is exploring the opportunities of offering service in Iraq. The operator, which is licensed to offer services in 22 countries across the Middle East, is eager to expand into new markets.

In terms of Iraq, the opportunities are likely to develop more quickly there than in another key target market, Iran, Showtime CEO Peter Einstein told SATELLITE NEWS. “Iraq is going to be a very interesting market. There will be lots of wealthy, well-educated people there. It could be a good market for us. We are putting in the building blocks and the foundations of our business there even before we start to look at Iran, which is still available but is probably more longer term.”

The operator has had a challenging year, particularly with the conflict in the Middle East, but Einstein believes consumer confidence has now returned. “We are deeply fortunate that once the combat fighting ended in April, consumer confidence in the region returned. Things happen quickly in the region generally. Even though there are still various tragedies, that has not led to a further lack of consumer confidence in the region.”

The operator, which reached the cashflow breakeven point in May this year, competes against pay-TV operators ART and Orbit in the region. While having three players in the market may be healthy for the consumer, Einstein believes consolidation is inevitable. “We said to both of our competitors, let’s sit at the table and figure out a way to consolidate. I think they would like to do it. You are dealing with a market that has people in this business for lots of different reasons. Our competitors are certainly losing a lot of money and I don’t think either of them would deny it. When you consolidate, everyone has to make some sacrifices. Until they are ready to do that, there won’t be any consolidation. It is just a matter of time before we sit down and take our equal seats at the table and find a way to consolidate.”

Showtime has had a very busy 2003. In January, it launched the premium Al Shasha pay-per-view movie channel. The operator’s main competitive advantage is its Western programming, but its Arabic programming is also important to its customers. Einstein commented: “We have two Arabic channels – movies and sports. These basically round out our proposition. Our position is still Western entertainment that is customized for the Middle East. It is a position that has been successful for us. It is the pay-TV driver in the region.”

With free-to-air (FTA) Arabic television still strong, local content has to be compelling for Showtime to succeed. “We always try to put something into the market place that you can’t see anywhere else,” Einstein said. “Even though many of these Arabic movies have been shown elsewhere, they are seen differently on Showtime. Digitally, they have been cleaned up. There is no editing [of content]. Arabic films are edited on FTA. On Al Shasha, the Showtime Arabic movie channel, you can see the movie as the director wants you to see it. There are no commercials, unlike other Arabic channels.”

Showtime has a monthly average revenue per unit (ARPU) of over $50, although churn remains high. According to Einstein, the operator is still performing well. “In a highly competitive market with other players, if you are below 25 percent annualized [churn], you are doing very, very well, and if you are below 20 percent you are doing phenomenally well. We are definitely in the low 20s and heading down to below 20. You have to allow 5 percent for people who move in and out of the region. Our region is very fluid that way. When we reach 15 percent, we are at BSkyB levels – 15 percent would be nirvana.”

–Mark Holmes

(Andrew Bone, Showtime, e-mail: [email protected])