Chris Forrester reports on new technology developments from the Satellite 2002 conference in Washington.
As usual, the Satellite 2002 conference in Washington this March recounted the events of the past year or so in the industry, but this year's event was dominated by discussion on and about broadband-by-satellite and was described by Steve Blum, president of Tellus Ventures, as "The good, the bad and the ugly." The good news, he said, was some clear signs that the DBS (direct broadcast satellite) consolidation was not limited solely to the United States, but was extending to other DTH ventures in Europe and elsewhere. Blum's view was that the Echostar and DirecTV outfits would successfully merge, although other speakers put the likelihood of a successful DBS merger for the US at no higher than 20-25%. However, there was an overwhelming consensus from delegates that Charlie Ergen, Echostar's CEO, was in a win-win situation whatever the outcome.
"Echostar is ahead of DirecTV in winning new subs, and in its policy regarding interactivity. It is also more aggressive, and I am impressed with their attitude to High-Definition and to new Personal Video Player-makers like Moxi, which is being integrated on Echostar's DiSH-branded high-end satellite receiver units." Even if he loses, Blum said Ergen will have successfully sidelined DirecTV for the best part of a year. Blum predicted that the US satellite DBS industry will be touching 35m homes by 2010. He said that adding local city channels to the DBS mix of pay-TV services was "making a real difference" in take-up.
Blum's comments were echoed by fellow-panellist Sean Badding, VP at specialist consultancy The Carmel Group, who placed the Echostar/DirecTV at the top of his "hot" list of industry topics. He suggested that DirecTV was also suffering because of high piracy levels, which he placed at a conservative 700,000 users "and it could be 1 million homes." He suggested that the market's growing interest in interactive television would help curb piracy, with would-be users of iTV services forced to have a legitimate subscription.
Badding's full list of hot-to-cold highlighted topics were:
HOT: the DBS merger in the US
HOT: Sat. radio: "demographics are looking good"
WARM to hot: DVR/PVRs "they are the industry's 'sweet spot'"
WARM: Sat broadband: "it WILL turn around in rural areas"
COLD: Ka-band exploitation
COLD: Sat. phones: "We've seen the worst but niches will survive"
While not being entirely pessimistic about the prospects of broadband-by-satellite, Blum nevertheless cited some unpalatable arguments and suggested that few current players would survive. "Many services have been in the market for five years or so and have yet to take off," said Blum. He specifically mentioned WildBlue, AstroLink, CyberStar, and Spacebridge as examples. The dilemma, he said, was the generally accepted figure that service operators needed to hit the 15,000-20,000 users per transponder to make commercial sense. Unfortunately, he said, "StarBand and DirecWay by all accounts are not coming close to that target." The main dilemma faced by the sector was that the moment any streaming video was drawn down, the customer's bandwidth demands grew to around 200 kbps and in doing so "killed the model."
Blum was also bullish about the US' DARS radio services (XM Radio and Sirius). He said despite the modest number (30,000) of XM's sales (to January), the demographics were much better than expected with 80% of buyers based in urban areas, where one might have thought they were already well-served by local broadcasts (and already skewing well past the normal in-car entertainment system buyers), while 24% of buyers were also 50+ years old. Blum's forecasts saw 8.7m subs in place by 2005. He argued his corner by suggesting that XM's numbers were achieved with a very limited distribution of about 10% of the US, and achieved over a very limited time-scale. On this basis alone, he suggested that by the end of 2002 the two players could achieve "an upper-six-figure total" of subscribers.
Bear Stearns senior analyst Robert Peck was more cautious on DARS, not in suggesting that either operator would fail but in comparing them to what he described as "binary stocks": "They'll either enjoy a multiple of a tenfold increase [in stock price], or fail!" Other bankers and analysts put in their two cents worth, with ABN-Amro's Thomas Watts saying unambiguously that in his view satellite radio is going to be the "next DBS." Carmel Group's Jimmy Schaeffler berated delegates for having any doubts at all on the prospects for DARS, saying that the sector enjoyed a high 8 out of 10 on his "no-brainer" index of probable success.
EuroConsult's chief analyst Stephane Chenard also threw his hat into the DARS ring, reminding delegates that 10 years ago the US multi-channel market cruelly dubbed DBS as "Don't Be Stupid," and suggesting DARS might well have the same breath-taking result. On the topic of DBS he stated: "We now know how wrong they were. However, it still took some six years to become a success. It is a success not just in rural areas but a success in urban areas." He argued that he saw real expansion in the DBS/DTH sector helped by "increased efficiencies and better digital compression ratios."
As part of EuroConsult's monitoring, he said that historically every time a TV-based transponder was vacated there was a replacement demand equal to about 1.3 transponders. Chenard also cited CableVision's [US] plans to launch "MagRak," a 40-channel bouquet of new channels based on magazine products, later this year. "There could be thousands of new channels launched based on a larger market base, increased competition [between platforms], and lower costs to entry."