Pace Micro Technology is one of the main suppliers of set-top boxes and new technologies to satellite pay-TV operators around the globe, working with a number of the most successful direct-to-home (DTH) operators such as BSkyB, DirecTV and Sky Italia.

As these operators face more competition from terrestrial TV providers, Pace now aims to help the satellite operators stay ahead of the terrestrial TV providers by bringing advanced offerings such as high-definition (HD) and personal video recorder (PVR) services to customers as well as aid the DTH players in entering the Internet protocol (IP) world.

Neil Gaydon, named CEO of Pace in April, lays out the roadmap for the company and its satellite operator customers for Via Satellite.

Via Satellite: What major challenges are satellite pay-TV operators facing?

Neil Gaydon: There are four main challenges facing satellite operators in 2007. The first is ongoing basic subscriber acquisition — increasing their subscriber base as well as retaining existing subscribers and growing ARPU (average revenue per unit). This remains essential for future business plans and growth. The second is getting HD and PVR services rolled out to a wider audience.

The third is better utilization of the hard drive in PVR products with push VOD (video-on-demand) services to compete against VOD services from cable, telcos and broadband services. And lastly, they must plan for a return path and backend infrastructure to support triple-play services for future ARPU growth, which will also fend off telco, cable and other broadband services advances.

Via Satellite: Do you think satellite pay-TV operators will be able to maintain their leadership over other providers in terms of introducing new services?

Gaydon: At the moment, they are more nimble than other operators, as they have a relatively simple system compared to cable, for instance, which can be a two-way system. Although as satellite operators also move to two-way systems, things will get more complicated, especially as they move to triple play, which could then slow innovation. But the benefits will be worth it for subscriber retention and increased ARPU.

Another benefit for satellite operators, especially the most successful, is that they have built up very large and strong subscriber bases and also strong consumer brands, often more powerful than some of the largest CE brands, which in turn they can build on. Satellite also has the advantage of ubiquitous coverage not requiring huge infrastructure costs that comes with other transmission methods.

Via Satellite: What types of new products are you planning to introduce for satellite pay-TV operators?

Gaydon: The products we are developing range from hybrid MPEG-4 HD/PVR solutions all the way to new low-cost standard-definition (SD) boxes. This includes next generation versions of current products, such as SD and SD PVR boxes, many coming through with Ethernet connectivity.

Interestingly, although there is a lot of buzz about HD, the demand for SD and SD PVR remains strong. However, when you look at operators on an individual basis, some are more advanced than others in what services and products they are rolling out. So for those without an HD PVR on the market, HD PVR will make for exciting launches in 2007.

Via Satellite: Has the initial demand for HD services been in line with your expectations?

Gaydon: Although not a complete surprise, the take-up of HD has been lower than initial projections suggested around Europe. If I go back to when HD launched in the U.S. and where we were delivering some of the world’s first HD cable boxes, the take-up of HD happened in fits and starts over a five-year period. The reasons were content, price of HD-ready panels and set-top boxes.

Now that all of these things have aligned, the U.S. market is taking off in a significant way. I believe the same will happen in Europe in a shorter time frame than it happened in the U.S., although the dynamic will be somewhat different, as Europe is more fragmented in terms of various cultures, content availability and operator capability.
 

Via Satellite: How much of a threat do you see IPTV being to satellite providers in major markets?

Gaydon: I think there is a very real threat there from the telcos, as they have tremendous resources, a large number of users and very strong brand names. They also, in some cases, have earned consumer trust. What they don’t have, or will find problems with, is ensuring they have the primary content rights. If for example BT had won the Premier League rights for their launch of BT Vision, I would say they would have been a very big threat to the incumbents.

Another key issue facing the telcos is being able to put together a very strong consumer experience. In the main, telcos have been very good at building infrastructures, but when it comes to the end-user experience and competing against the likes of BSkyB, DirecTV or Comcast, who are masters in this area, I remain to be convinced that telcos can be as strong here.

Via Satellite: Do you see more satellite pay-TV operators following BSkyB’s lead and buying telecoms infrastructure?

Gaydon: I think BSkyB is much further along than other operators I can think of in Europe, but obviously I can’t speak for all of them. You have to assume there are talks going on, and you have to think they are looking at the return channel so they can offer triple play.

Via Satellite: How do you expect satellite pay-TV operators to counter the threat posed by telcos?

Gaydon: We will continue to integrate new technologies, for example, an IP return path, as quickly as we can as well as continue to drive costs down in the actual [set-top boxes] themselves. Cable hasn’t launched MPEG-4 HD yet, whereas satellite has. Cable is obviously much stronger in the U.S. when compared to Europe, but it boils down to content. As long as the satellite players remain in control of the primary content such as football, sports, movies, etc., they will continue to lead. I think that we, as an industry, can often get caught up in the technology, but we must not lose sight of the fact that the end user gets caught up in the content.

Via Satellite: How do you see the satellite pay-TV landscape developing over the next 12 months?

Gaydon: I see satellite operators continuing to grow their basic subscriber bases, tiering in new services such as HD, PVR and push VOD. I think they will continue to dominate in terms of content.

It is also worth pointing out that beyond technologies such as HD and PVR and an IP return path, there is multi-room, which for satellite operators will be key, especially as analog starts to switch off in major markets later this decade. We believe consumers will want the concept of the networked home where they can easily access all their content in all different parts of the house. As PVR proliferates and consumers get used to watching what they want, when they want, an integrated home solution would be a very powerful method for satellite operators to capture and retain market share.

Outside of the very early adopters, who could very well opt for a media center type product today to get this level of functionality, the majority of consumers will be too confused about what to buy in terms of the network. A strong operator, particularly a satellite operator, can get ahead of their competitors by putting in a networked home to satisfy this requirement.