By Patrick M. French

Television broadcasting is a key driver for the satellite industry, yet video sometimes is taken for granted and overlooked as a critical segment to the health and stability of the commercial satellite market. Northern Sky Research’s new study, Global Assessment of Satellite Demand, 1st Edition, investigates the major applications for commercial satellite transponder capacity in 12 different geographic regions.

Video services alone make up roughly 60 percent of the world’s demand for satellite services. In certain regions, specific operators generate more than 80 percent of their revenues from video services. The study segments video services into three different applications, using a detailed “bottom-up” model to project where this market is headed. The three applications included: video distribution of TV channels for free-to-air and cable TV; direct-to-home (DTH) delivery of pay-satellite TV services; and broadcast feeds and occasional- use services. In each case, a video services model was developed to catalog and analyze the complete spectrum of analog, digital, high-definition (HD), C-band and Ku- band television channels and feeds carried on each transponder of every commercial satellite in all 12 regions.

The individual trends in each region varied significantly by service type and by frequency band but certain global trends emerged. First and most important, growth of free-to- air programming and, most especially, DTH programming is spurring strong demand for Ku-band capacity in many regions. Examples include rising demand in Australia and New Zealand, a move in America for EchoStar Communications [DISH] to lease commercial capacity to augment its existing fleet, rapid channel growth in Central and Eastern Europe along with North Africa and the Middle East, and the possibility in the coming 12 to 24 months of a second DTH service for India and a first DTH service for China.

Those close to the video market usually are cognizant of the trends in Ku-band demand but far fewer individuals are aware that demand for C-band capacity to deliver video services has been weakening lately. The worst case appears to be North America, where the conversion of the large number of C-band analog channels and feeds into digital broadcasts has translated into a period of flat demand that is projected to last for at least two more years. In most other regions, growth in C-band demand is occurring for video services but at rates much slower than for Ku-band capacity. This trend is not a rule for every region, however. C-band capacity demand for video services in Sub-Saharan Africa is strong compared to Ku-band capacity demand. However, the trend is impacting satellite operators in many regions of the world and, in turn, leading to declining transponder pricing for certain applications.

HDTV Highlights

Another major trend is the emergence of HDTV. Industry officials have long talked about the potential positive impact HDTV would have on demand for video services. Many operators are eager for this sector to emerge but the satellite industry will need to wait until 2006 for a sufficient number of HD channels to be launched to boost transponder demand. Then, the effect would be localized to a few regions and limited to a few key video neighborhoods.

It will not be until 2008 that North America sees the broadcast of more than 100 HD channels on C- and Ku-band commercial satellites. Asia will be the next biggest HD market, with Japan and Australia leading the way. Europe will follow quickly thereafter with respectable growth. Expect to see a few HD channels broadcast in most every regional market by 2006 or 2007; however, beyond the markets just cited above, the trend would be limited to a small handful of HD channels. The demand for such HD capacity elsewhere would not be significant. The satellite industry must remain patient about the slow emergence of the HD market. There is no doubt that it is coming, yet it will be quite a few years for the demand for HD channels to grow and to translate into bottom-line gains for operators.

Transponder Demand

Overall, C- and Ku-band transponder demand for video services using commercial satellites will grow at a global average annual rate of 4.8 percent between 2003 and 2009. Within video services, demand for DTH transponders will have the largest gains during the forecast period, and it will average year-on-year growth of 7.3 percent, followed by video distribution growing at 4.3 percent, and video contribution and OUTV picking up 3.9 percent on average each year. In real terms, leased C-band and Ku-band 36 megahertz transponders for video services will climb worldwide from about 2,350 in 2003 to more than 3,150 in 2009.

North America is by far the largest market for video services, accounting for between 27 percent and 29 percent of the commercial market for the forecast period 2003-2009. This percentage does not include the capacity on the dedicated DBS fleets. With total pay-TV penetration for cable and satellite TV of approximately 80 percent of U.S. television households, and strong competition pushing service providers to offer an ever greater variety of programming, North America is expected to see a steady growth in transponder capacity demand of 4.2 percent on average per year, with a majority of the video services growth coming from demand for Ku-band capacity.

Western Europe is the second largest regional market in terms of leased capacity for video services. However, despite strong channel growth this market, dominated by services provisioned with Ku-band capacity, Western Europe only is expected to see leased capacity grow at less than 2 percent per year on average. Growth has slowed in the DTH segment, and the HD market will not spur real capacity demand until 2008 at the earliest. Smaller markets, such as Central and Eastern Europe and the Middle East and North Africa, are projected to see demand for commercial satellite transponder capacity for video services grow at rates about three times faster than Western Europe.

The third largest region leasing capacity to provide video services is East Asia, with Japan accounting for a large portion of the market. The East Asian market is projected to grow at an average annual rate of about 6 percent, with a significant amount of the growth coming from expanded video services in the greater China market. Japan will continue to account for the largest share of leased capacity during the entire forecast period. However, expanding DTH services in Hong Kong, a new DTH service for China expected to be launched in 2006 or 2007 and continued general channel growth will mean that specific opportunities will translate into positive growth for the satellite operators serving this market.

For the satellite industry overall, its bread and butter comes from video services. While emerging Ka-band broadband satellite Internet access services for consumers, converging satellite-Wi-Fi applications or growth in VoIP applications may offer potential, video service is where the real money among operators is made today. In fact, there is simply no better means than satellite to deliver TV programming to paying customers. There will be localized ups and downs in many of the regional video services markets but video broadcasting as a whole is rock solid, and it provides the financial foundation that makes commercial satellite services one of the most profitable and predictable sectors in the larger telecommunications market.

Patrick M. French is senior analyst and regional director, Europe, for Northern Sky Research. He can be reached by e-mail at [email protected]. Further information about Global Assessment of Satellite Demand, 1st Edition can be found at http://www.northernskyresearch.com.