While a few high-profile companies have filed for bankruptcy in the last 12 months, overall, the satellite sector seems to have held up well under tough economic conditions that have created a recession that has spread around the globe.

“The State of the Satellite Industry Report,” issued by Futron for the Satellite Industry Association (SIA), looks at the performance of the satellite industry in 2008, and while those numbers cannot provide a true look at the impact of the recession, they still provide some interesting figures on the overall health of the satellite industry and show the strong fundamentals which underpin the satellite sector. Overall, worldwide industry growth was 19 percent from 2007 to 2008, compared with a 15 percent increase from 2006 to 2007. The satellite service market was particularly robust, generating $84 billion in revenues in 2008, up from $72.6 billion in 2007.

Other analysts also see strong growth in the sector. “Overall, revenues of FSS operators saw a revenue growth of around 10 percent in 2008 for an increase of 9 percent in capacity leased,” says Pacome Revillon, CEO of French satellite consultancy Euroconsult. “Our estimates for 2009 and 2010 correspond to a growth of capacity of around 6 percent and 5 percent, respectively. Compared to the global economic growth that should remain lower, relatively sustained demand for satellite capacity should support growth.” The Space Foundation’s “Space Report” says the global space economy grew nearly 2.5 per cent in 2008, rising to $257 billion in worldwide space revenues. The largest segments of the space economy were in commercial infrastructure and commercial satellite services, which together accounted for 67 percent of the total, compared to about 32 percent for government space spending. The largest growth sectors were space products and services, which grew 10.4 percent from $82.4 billion to $91 billion, with the majority of this attributed to DTH services, which generated $69.8 billion in 2008. FSS showed the strongest growth rate in the services sector, with revenue up 31 percent from $12.8 billion to $16.8 billion.

“The satellite industry has historically lagged the rest of the economy by at least 18 months in terms of feeling the effects of downturns such as we have been seeing recently, thus we would not expect to see negative news hitting the FSS marketplace until late this year — if at all. There have been some cancellations of video channels but also new starts, especially in the relatively new HD space, which only increases the demand for satellite capacity,” says Andrea Maleter, technical director, Futron Corp.

Maury Mechanick, counsel in the Washington, D.C. office of White & Case LLP, says, “On the one hand, it is hard to say that the FSS industry has been unaffected by the global economic downturn, given the well-publicized bankruptcies of ProtoStar, WorldSpace and DBSD (the company formerly known as ICO North America) and the related Sea Launch bankruptcy. Clearly, credit difficulties caused by the downturn have played a major role in those developments. At the same time, the major players in the industry do not appear to have suffered any significant harm from the downturn and indeed are continuing to report very attractive financial results. And when the number of number of new entrants poised to enter the fray in the next couple of years is taken into account, this further confirms the overall attractiveness of the satellite services marketplace.”

However, while most agree the industry is performing well, there are potential warning signs on the horizon that the economic crisis could ultimately have an impact. “The crisis, by impacting consumption, should progressively impact subscriptions to pay TV and even the adoption of telecom services. As such, demand of capacity in case of a long crisis could be impacted. As an example, the crisis could favor a consolidation process between part of the emerging satellite DTH pay-TV platforms,” says Revillon. Ultimately, it could be new system operators which suffer the most impact. “The first impact may be a higher difficulty in financing new satellite systems. While the financing of certain projects may have been expected earlier, several have not announced any significant new financing in the last six months. The Chapter 11 filing of ProtoStar may also be partly due to the difficulty to convince investors. In parallel, a larger involvement of credit agencies, particularly ExIm bank and Coface has been observed, and is certainly an evidence of the difficulty to raise funds otherwise,” he says.

 Areas of Growth and Concern

One of the interesting aspects of the satellite sector is the declining contribution of satellite manufacturing to overall revenues. In 2003, satellite manufacturers were responsible for 13 percent of revenues generated by the satellite industry as a whole. In 2008, the SIA report says that satellite manufacturers were only contributing 7 percent of total revenues. Satellite services contribute around 60 percent of total industry revenues, and the good news for the satellite sector is that the demand for pay-TV services shows no sign of slowing down. According to the SIA report, at the end of 2008, there were more than 130 million satellite pay-TV subscribers around the globe, an increase of more than 30 percent compared to 2007.

Most analysts agree that strong demand for satellite capacity in emerging regions such as the Middle East, Africa and Asia will continue to boost the satellite industry. “Demand in Africa and the Middle East have been extremely heavy in recent years, producing utilization levels matching or (in some cases) exceeding those in Europe and North America. Similar levels of demand have not yet emerged in Asia or Latin America, although growing HD and other DTH channels in both regions are likely to change this situation if the economic recovery does not take too long,” says Maleter, who sees strong opportunities for regional operators such as Yahsat and Measat. “The greatest advantage that regional satellite operators have is their local presence and relationships — including relationships with government customers and national telcos as well as broadcast users. Measat for example, has a long-standing strong position in both Malaysia and the region overall. Yahsat and SmartSat each have multiple relationships that they can leverage to develop strong positions in both local and broader regional markets,” she says.

The launch service industry had a robust 2008, with revenues up 20 percent compared to 2007, according to the SIA. There were 37 satellites which were considered commercially launched on behalf government clients, while 41 satellites were launched on behalf of commercial clients. Analysts see the launch sector performing even more strongly in 2009. “If you look at the number of launches attempted thus far this year, it stands at 47. If you look at where we were this time last year, we were at 37 launches, so you can say if the pace continues, we will have a better year in 2009 compared to 2008,” says Marco Caceres, an analyst with Virginia-based The Teal Group. “On average, there are more launches in the second half of the year than there are in the first half of the year. I would estimate we would have more launches this year. In 2007, there were 68 launches and 66 launches in 2006. In the last few years, the numbers of stabilized in the mid to upper sixties. I would say we will probably surpass 70 launches this year,” he says. “The number of launches in 2009 should at least match those of 2008, despite the financial difficulties being faced by Sea Launch. The emergence of SpaceX as a true competitor provides an exciting opportunity for this market going forward. And with strong satellite orders in the past two years, the launch providers will need all the capacity they can muster to put these spacecraft in orbit,” Maleter says.

The launch numbers also show the continued struggle of U.S. launch service providers. According to the study, U.S. launch providers generated revenues of $1.1 billion in 2008, a slight increase compared to 2007, but despite stable revenues, the U.S. share of worldwide launch revenues declined from 31 percent in 2007 to 28 percent in 2008. Caceres was surprised by Sea Launch entering into Chapter 11 bankruptcy protection earlier this year. “Their main problem was cashflow. Their costs have gone up. I read that their suppliers in Russia and Ukraine had increased the costs of their materials and services. I think that has impacted them. I don’t think it is do with lack of business. Their backlog is pretty good. They have over 10 satellites in their launch manifest. They were hurt a couple of years ago by their launch failure, which meant they had to spend money to reconstruct the launch pad. That was an expense they didn’t expect, and they lost a few contracts because of that. They did not get back up and running for a year. I think their higher expenses impacted there,” he says. Caceres also believes Boeing’s approach to the launch services market could be seen as a little short-sighted. “I think also Boeing is not all that certain that it wants to continue to invest in that venture. Part of that is that Boeing is not particularly interested in the commercial launch business. They seem to be more willing to live off of their government launch business, and I see that as a bit short sighted because they are putting all their apples in one basket with the U.S. military and NASA.”

Satellite Manufacturing

The global satellite manufacturing market was a tough place to do business in 2008. According to the SIA report, global satellite manufacturing revenues decreased from $11.6 billion in 2007 to $10.5 billion in 2008 due to the number of satellites launched falling from 102 in 2007 to 94 in 2008. U.S. satellite manufacturers were particularly hard hit. In 2007, U.S. satellite manufacturing revenues were $4.8 billion, but in 2008, they were just slightly more than $3 billion. The SIA reports said the number of U.S.-manufactured satellites launched between 2007 and 2008 dropped by more than 50 percent, from 48 in 2007 to 21 in 2008, and the U.S. share of manufacturing revenues was less than 30 percent in 2008, compared to more than 40 percent in 2007.

Out of the 21 geosynchronous orbit satellite orders announced in 2008, U.S. manufacturers received 52 percent, while European satellite manufacturers captured 33 percent, down from 43 percent compared to 2007. The figures also hint at growing competition from Russian, Chinese and Japanese satellite manufacturers, which each gained one satellite order in 2008, a combined 14 percent of the market, up from 5 percent in 2007. “If you look at the geostationary satellite market last year, we saw around 24 satellite orders, which was a very good year,” Caceres says. “Some of those are large satellites, and some are more on the smaller side. It is much more diverse than in the past because you have companies like Orbital Sciences with their small satellites. They are competing for business against bigger buses. I don’t think we will repeat that this year.” 

Future Drivers

One of the major growth markets for satellite operators over the next year could be HDTV as pay-TV operators look to ramp up their offerings to customers. According to the SIA report, the number of HDTV channels worldwide nearly by almost 170 percent between the end of 2006 and May. At the end of May, there were nearly 1,500 HD channel broadcast around the globe, with more than 60 percent serving North America. IMS Research, an Austin, Texas-based research consultancy, says it expects total worldwide HDTV households to increase at an average annual rate of 33.8 percent during the next five years, reaching 255 million households at the end of 2013. The DTH platform is expected to be the market leader with 38.1 percent of these households, cable is expected to follow with 26.5 percent of households and IPTV third with 12.3 percent.

“We have still not the full impact of demand for HD video services and, with the prospect of 3D-HD not far behind, these opportunities could be quite substantial,” Mechanick says. “Indeed, it seems that every new trendy application has resulted in greater and greater demand for bandwidth, and bandwidth hogs are generally music to the satellite industry’s ears. Similarly, there is no question but that the explosion of Internet-related wireless applications are straining the capabilities of the existing terrestrial wireless 3G networks, as powerful as they are supposed to be, and satellite should be well positioned to help alleviate some of these pressures. Finally, there is at least one emerging opportunity, which Intelsat in particular has been adept at exploiting, that being hosted payloads,” he says.

“DTH TV broadcasting remains the primary growth driver for the FSS sector. With 17 new DTH TV platforms launched last year, the number of platforms has now reached around 110, close to double the number of 2005,” says Revillon. Satellite remains the primary solution to provide digital TV in emerging countries, a situation that should not change in the foreseeable future. While the current economic crisis may limit new launches, additional platforms are still expected. In Vietnam, new services have for example just been introduced.”

Despite the emergence of telcos into the TV market, satellite operators remain well-placed to continue to monetize video markets around the world. “These trends should be viewed as fundamentally synergistic as between satellite and telecom technologies, as satellites have an important role to play in fueling the growth in IPTV services. In this regard, evolution in the way content is consumed is more of an opportunity than a threat, because in order to keep up with these changes, the creative ways in which satellites can support broadcast content delivery will continue to be very important,” says Mechanick.

Another potential strong growth market for satellite operators could be broadband. “The demand for Ka-band capacity continues to lag expectations,” Maleter says. “Consumer satellite broadband has taken off well in the United States, with operators reporting some 30,000 new subscribers a month. Outside of the United States, the take-up is very diverse, with government subsidy programs being important to promoting satellite growth.” Mechanick is more cautious and says the industry should be wary of false dawns which have plagued the satellite sector. “I am hopeful that Ka-band’s moment has finally arrived. There are still significant gaps in how global demand for consumer broadband is being addressed, and I believe that satellite has a golden opportunity to capture a significant portion of that demand. At the same time, recurring false perceptions regarding what satellite technology is capable of delivering continue to haunt the industry and serve as an impediment to its more serious consideration as a major player in broadband extension to rural and remote areas in the United States,” he says.

Outside of the United States, growth of satellite broadband services varies. “For Europe, a significant challenge is anticipated to be the fragmentation of the European market and the difficulty to develop efficient distribution networks,” says Revillon. This is why Eutelsat, SES and Avanti Communications are currently largely involved in the signing of agreements with service providers/resellers in different European countries. Worth noticing, SES has so far not committed to procure Ka-band capacity, while Eutelsat and Avanti satellites are currently being manufactured. The MENA market should present opportunities, but the distribution of services could also prove relatively challenging. In Asia, no major announcement has been observed so far, and the current question will be to see whether IPStar is able to accelerate its growth in a number of countries including China and India” with its Ku-band capacity, he says. 

Military Market

With a global economic recession, there could be tough times ahead in the military space arena. The cancellation of the Transformational Communications Satellite (T-Sat)) program in the United States could be evidence of belts being tightened in this area. “If you look at a dozen of the U.S. military satellite programs which are at different stages of development, almost all of them suffer from cost overruns, sometimes over 100 percent,” says Caceres. “At some point, you have to look at the military budget and say what can we afford. We still need satellites, but we need to find more innovative ways to provide these services for less money. You can’t continually pump money into systems when they are being delayed and suffer technology problems. The reality is that you are fighting two wars. The requirements have not diminished for the U.S. military. I think you will see a re-evaluation of the systems under development, but there may not be less satellites, but rather the satellite themselves may not deploy the latest and greatest technology.

Forecast International is projecting that defense departments worldwide will spend about $11 billion on 25 different multimission communications development, acquisition, and maintenance programs over the next decade. Specifically, this amount will be allocated for the development, procurement or maintenance of multimission communications systems or technology. â–