A major 65-page report on the satellite industry, and in particular Europe’s two major players, SES and Eutelsat, says – happily – that “reports of the death of satellite TV look exaggerated”. That’s the welcome good news, but the report from equity analysts at Exane/BNP-Paribas also states that the number of channels carried has declined for the first time in Q3/2015.
The bank’s satellite analyst Sami Kassib says that delivering TV signals still represents more than 60 per cent of satellite operators’ revenues. “However, video consumption habits and broadcasting technologies are changing fast.” In summary, Kassib says that the bank believes Eutelsat is “better positioned for [handling] this change than SES, which is more exposed to mature markets and to pricing pressure on its traditional business.” Exane sees a 25 per cent upside in Eutelsat’s pricing target, and maintains an “Outperform” rating for Eutelsat SES is lowered from “Neutral” to “Underperform”.
It isn’t just channel growth in developed markets which is slowing, and in some regions declining. The bank says its tracking of cable distribution trends in the US and Germany also shows a steady decline in the number of operational cable head-ends. Germany’s head-end count has fallen dramatically over the past few years, from 326 in June 2011 to 163 by November 2015.
“TimeWarner Cable’s upcoming transition from localised head-ends to two super head-ends coupled to the ongoing consolidation of the US cable market suggests further reduction in head-ends going forward,” says Kassib. “According to Encompass Digital, a leading player in video distribution services, 70 per cent of all North American C-band leases for cable head-end distribution are up for renewal between 2015 and 2022. We believe that these renewals are likely to see pricing pressure. SES generates an estimated 5-10 per cent of group revenues from US cable distribution.”
There is channel growth, but mostly in emerging markets. “The number of TV channels in emerging markets is still growing fast,” says the report. “According to our tracking, over 75 per cent of all TV channels added year to date were in emerging markets. Combined with the gradual transition to HD and UHD, this suggests solid demand. Our analysis of set-top box shipments suggest multicasting is likely to last longer than in developed markets. Competition from terrestrial networks in these countries tends to be much more benign than in North America and Europe. Euroconsult forecasts 4-5 per cent CAGR14-19e growth in satellite capacity for TV broadcasting in Africa, Asia and Latin America but hardly any growth in North America and Europe. The growing reach of satellite operators in emerging markets underpins favourable pricing trends.”
The bank is also optimistic about the impact UHD will have on the industry. “We continue to believe that the launch of new Ultra HD is likely to be a positive driver of increased satellite capacity demand. First, we note that announcements of UHD channel launches are multiplying. A few days ago, Sky announced the launch of its UHD offering in the UK in 2016 with its new Sky Q package, while in Russia Tricolor started broadcasting 2 UHD channels in November 2015. SES currently broadcasts 5 commercial UHD channels. Eutelsat is broadcasting its first 2 with Tricolor. The latest NSR forecasts suggest over 800 Ultra HD channels will be broadcast by 2025 of which two thirds [will be] on Satellite. North America, Western Europe and Asia are expected to drive most of the growth. We also believe that the UHD eco-system is more established than was the HD eco-system as the same point its cycle.”