Although it role as an in-orbit spare may not be the most glamorous, Galaxy-14 will play a vital role as Panamsat prepares for the expected growth of high-definition (HD) programming in the United States.

The Galaxy-14 satellite was placed into orbit Aug. 13 by a Soyuz-Fregat rocket from the Baikonur Cosmodrome in Kazakhstan. The spacecraft, the 24th satellite in the Panamsat fleet and the 14th to serve the United States, will be co-located with Galaxy 12 at 125 degrees West. Galaxy-14 is designed to deliver digital video programming, HD television, video on demand and Internet protocol TV service, but initially is planned to serve only as an in-orbit spare.

“Galaxy 14 is one of the key satellites that is part of our high-definition strategy in the United States,” James Frownfelter, Panamsat’s president and COO told Satellite News. “Back in 2001, after listening very closely to our customers, we believed that high definition was going to [drive] the next wave for expansion capacity in the United States. So we began to position ourselves in order to differentiate Panamsat such that we could provide a premium service to our customers in this time frame specifically for enhanced digital and high definition programing.”

As part of its strategy to respond to what Panamsat believes will be a growth in demand for capacity to support HD services, the company ordered a series of three small satellites from Orbital Sciences Corp. Galaxy-12 was launched in April 2003, and Galaxy-15 is scheduled for a Sept. 29 launch. All three spacecraft, based on Orbital’s Star 2 platform, carry 24 C-band transponders and are “very high powered and focused specifically on cable and broadcast distribution of digital and high def programming,” Frownfelter said.

The Growing Demand For HD

Panamsat’s strategy for addressing the HD market has been four years in the making, and for the moment, the company’s fleet carries the majority of HD traffic broadcast in the United States. “In terms of where we are on the HD rollout, because we made this bet back in 2001, we have been able to capture the majority market share of all HD programming being distributed via satellite for cable headend distribution,” he said, noting that Panamsat carries between 60 and 70 percent of the HD channels currently being distributed via satellite to U.S. cable operators.

That number of HD channels in the United States could increase dramatically during the next three to four years and Panamsat officials hope its investment in additional capacity on the new Galaxy satellites will help the company maintain its broadcast leadership position, Frownfelter said. “If you look at a lot of the industry studies, the projections are that the number of channels will grow to approximately 300 in the late 2008-early 2009 timeframe,” he said. “We believe this will drive growth through our business.”

Providing services to cable operators is not the only driver of Panamsat’s HD strategy. The supplemental capacity Panamsat provides to direct-to-home (DTH) satellite television services provider DirecTV Inc. gives Panamsat a supplemental revenue stream. “In DBS frequencies, the orbital spacing is a minimum of nine degrees, as opposed to FSS (Fixed Satellite Services), which is a minimum of two degrees. [DirecTV has] run out of frequencies to provide SD (standard definition), HD and the Federal Communications Commission’s requirements in local-to-local broadcasting.”

Panamsat expects those supplemental revenues from DirecTV to continue, even with the additional Ka-band capacity DirecTV gained from launching its Spaceway-1 and Spaceway-2 spacecraft. “Most of the Ka-band [on those spacecraft] is being allocated for local-to-local, and they still don’t have enough frequencies to accommodate what they are trying to do with HD and SD across their remaining satellite. So they need supplemental capacity that provides broadcast distribution,” Frownfelter said.

Offering Enough Capacity

Even with its advanced planning and new satellites, Panamsat believes the amount of capacity it has available for HD programming going forward is on track.

“We think we have positioned our capacity just about right today,” Frownfelter said. “We are about 85 percent utilized across our C-band network. We have approximately 25 transponders left that we can sell for incremental growth. That will give us another 30 channels or so if we are using current compression technology.”

Panamsat is pushing for the adoption of MPEG-4 technology to drive advanced compression standards, which would allow the company to put even more channels on its satellites. But if that technology, combined with other drivers, boosts the demand for HD channels earlier than current analyst estimates, it could create capacity shortages for Panamsat.

“That is probably our biggest concern – the timing of the rollout [of more HD content] versus the next phase of upgrading compression technology,” Frownfelter said.

So what is it going to take for those concerns to possibly come to fruition? Frownfelter identified three main drivers of HD programming: pricing of consumer electronics, the development of incremental revenue streams from programmers and content providers and increasing throughput at the cable headends. While a number of variables are still in play in each of these areas, factors could come together to drive an explosion in demand for HD content within the next few years, he said.

The pricing of HD-ready televisions is already coming down. Frownfelter noted that two years ago, an HD-ready TV cost $10,000, and today it is down to roughly $2,000, though he said it needs to come down a bit more.

On the cable headend side, with the SD, HD, video on demand (VOD) and interactive applications that cable companies are trying to push, a lot of the cable headends are tapped out in terms of throughput, Frownfelter said. Cable companies “are investing now in digital upgrades. A lot of them have made the investments, but a lot of them haven’t. Until the cable companies have their facilities at maximum throughput, there is going to be a bit of a bottleneck there. We expect that is going to take about another year and then that won’t be part of the equation anymore.”

The biggest factor that could accelerate the demand for HD programming will be incremental revenue generated by that programming.

“Today, with the 39 channels that are offered, there is not an incremental revenue stream that comes in, or a very small one, to the programmers and content providers,” Frownfelter said. “What they are figuring out is how are they going to drive those incremental revenue streams with HD, VOD and all the incremental types of applications that are going to be wrapped up in what you call future digital delivery of video signals. As soon as they figure out how to do that, then the doors are going to open wide.”

–Gregory Twachtman

(Kathryn Lancioni, Panamsat, 203/210-8649)