The number of U.S.-based commercial satellite imagery suppliers could dwindle to two by the end of the year, industry officials and observers said.

Space Imaging, which launched the first of the current generation of high resolution imagery satellites in September 1999, could be acquired by one of its two competitors by the end of the summer, said Ed Jurkevics, an analyst with Arlington, Va.-based Chesapeake Analytics.

“I think Digitalglobe and Orbimage will fight tooth and nail for this,” Jurkevics said. “And this is not a small fight. This is a major showdown that will shape the future of the industry. Whoever gets Space Imaging will be in the position to have a major percentage of market share.”

Digitalglobe, based in Longmont, Colo., operates the Quickbird satellite, which can produce images with a resolution of 0.6-meters. Dulles, Va.-based Orbimage Inc. owns the Orbview-3 spacecraft, which can collect images with 1-meter resolution. Adding Space Imaging and its Ikonos 1-meter imagery satellite would be a huge advantage for either company, Jurkevics added. “I think this is of critical strategic importance to both competitors,” he said.

Offers for Space Imaging are due by the end of July, Jurkevics said. “The deal may not be closed until fall, but we may know the winner by the end of the summer, or at least the seller will know the winner.”

Digitalglobe spokesman Chuck Herring and Tim Puckorius, Orbimage’s senior vice president for worldwide marketing sales, both declined to comment on any interest in Space Imaging.

Space Imaging, based in Thornton, Colo., was depending on government support to help finance its next spacecraft but failed in two attempts to land a contract. Digitalglobe and Orbimage each won $500 million awards from the U.S. National Geospatial-Intelligence Agency (NGA), which is responsible for acquiring imagery for the Department of Defense.

The main competition for Space Imaging could come from a group of the company’s international ground station operators, Jurkevics said. The distributors are looking to protect their investment but may have trouble unless they can find a U.S.-based company to join their efforts, he said.

The potential owner also will have to deal with the eventual loss of Ikonos. “I think the economics are a little bit better for someone with an existing business, and even better for one with an existing Nextview contract,” Jurkevics said. “Whoever buys it will immediately have to start raising money for another satellite if they don’t already have one. If you’re buying Space Imaging to milk it and close it down, you need to raise about $35 million to $60 million. If you try to build another spacecraft, you need an additional $500 million to $600 million.”

Mark Brender, a spokesman for Space Imaging, would not comment on any merger and acquisition activity, but did say, “the satellite is healthy and is expected to last until the mid-2008 timeframe. Space Imaging is going through a time of uncertainty, but the technology is best of class and our archive is the strongest of any of our competitors.”

Brender noted that Space Imaging has other revenue sources, including distributing imagery collected by Indian imagery satellites and a the Clearview contract to supply the NGA with imagery. Digitalglobe and Orbimage also hold Clearview awards to supply NGA with imagery from their current spacecraft.

The NGA recently put out a request for proposal for a $20 million supplemental award under Clearview and a request for proposals for supplying imagery for the fourth full year of the contract is expected to be released this fall.

New Satellites

Along with a potential battle for Space Imaging, Digitalglobe and Orbimage are focusing on developing and launching next-generation imagery spacecraft under the NGA’s Nextview program.

Digitalglobe captured the first contract in September 2003 and was scheduled to launch its Worldview spacecraft by late 2005 and begin operations in the first quarter of 2006. But the satellite, being manufactured by Ball Aerospace & Technologies Corp. of Boulder, Colo., has fallen behind schedule, and Digitalglobe now plans to have Worldview operational by the third quarter of 2006.

Digitalglobe requested a schedule modification for the Nextview program, and NGA is currently in negotiations with them for the changes, NGA spokesman Howard Cohen said in a written response to questions. NGA expects that Digitalglobe will maintain its revised launch schedule, he said.

The satellite slipped a few months behind schedule due to problems with some of the components, said Herb Satterlee, Digitalglobe’s CEO. But the parts are in-house now, and the company also deployed part of a new ground control system that will be needed to handle the volume of data produced by both Quickbird and Worldview, he said.

Orbimage landed its Nextview contract in September 2004, capping a turnaround for the company, which had just emerged from bankruptcy at the beginning of the year. General Dynamics C4 Systems is manufacturing Orbview-5 and it remains on schedule for launch in early 2007, the NGA said.

Developing The Commercial Market

With U.S. government support of the industry secured for the foreseeable future, the companies can now concentrate on developing the commercial market for their products, officials said.

While the NGA contracts stabilized the industry, demand from outside the government also is driving growth, Puckorius said. “We are thinking about the ways to develop the commercial market place. We are working with value-added resellers. They own the marketplace and a have good understanding of what’s required in the marketplace.”

Commercial revenue for Digitalglobe has nearly doubled in the past year, which Satterlee attributed to more awareness of the product. “People are more comfortable with high resolution satellite data,” he said. “We expect the commercial business to grow at a much faster rate than other segments. It started more slowly than we wanted it to, but it’s now moving at a pretty good pace.”

While Digitalglobe and Orbimage emerged as the two competitors in the U.S. market, the two companies will be competing more with imagery offerings from international competitors in the future, officials said. Countries such as France, Israel and India are well established in the market, and other countries are preparing to launch their own imagery spacecraft.

“I’m not worried about domestic competition as much as international,” Satterlee said. “In the United States, we’re on equal footing being financed by private companies. Internationally, there are governments financing 100 percent of 1-meter or better systems and I may not be as competitive with them. We were in the market first, so we should have an advantage, but the international competitors are going to be there. Maybe not this year, but it is coming.”

Imagery satellites developed and operated by other countries often can fill needs not met by the U.S. commercial satellites, said Clark Nelson, spokesman for Spot Image Corp., the Chantilly, Va.-based marketing arm of France’s Spot Image. The company operates the fleet of Spot imagery satellites built by the French government and also has deals to distribute excess capacity that other countries around the globe are putting into orbit, he said.

“What cannot be provided by the U.S. industrial base but is needed by the users will be met by going outside the United States,” Nelson said. The United States mainly offers high resolution and low resolution imagery, he said.

“There is a vast range in between [high and low resolutions] not met by U.S. companies that are met by the plethora of other systems out there,” Nelson said. “It’s a great resource. If you look at the range of systems coming out of countries all over world, users are the ones that will benefit from this in the end

Jurkevics thinks government business around the globe will continue to be the main driver of the commercial satellite industry, “but there is nothing wrong with that. Times are finally good in this industry. I don’t believe these companies are having trouble closing their financing rounds for Nextview, which means investors are finally viewing this industry as having some stability.”

–Jason Bates (Ed Jurkevics, Chesapeake Analytics, 703/525-6730; Chuck Herring, Digitalglobe, 303/684-4020; Howard Cohen, NGA, 301/227-3105; Nancy Coleman, Orbimage, 703/480-9580; Mark Brender, Space Imaging, 703/558-0309; Clark Nelson, Spot Image, 703/715-3131)