Deutsche Bank has just published a report on the prospects of the satellite industry, claiming that the transition of niche SD channels from satellite to OTT will not be compensated by the growing number of Ultra HD channels, leading to declining revenues in the satellite operators’ key market video.
“No profit warning, but warning signs over video continue,” the Bank writes in its Fixed Satellite Services industry update. “Our concern is not that TV platforms will abandon satellite altogether. Satellite’s cost advantage over DSL will remain for a long time. But rather linear TV channel launches will slow on satellite as more investment is directed to on-demand/OTT, while compression and time-shifted channel closures will more than offset incremental UHD demand. Just look at 3Q reporting from the major content producers. Time Warner (HBO, CNN, Warner Bros films) cut 2016 EPS guidance 14% mainly on re-direction of spend into content for “broadband delivered initiatives”. TW is ahead of the curve, more will follow.
“Only Eutelsat and Intelsat report Video/Media separately and reported -2%/flat in CY3Q. Intelsat cited continuing compression pressures, as well and delayed contracts in their Media business; “Our Media business is falling short of our original goals”. On compression, the company has flagged North American platforms rationalising demand through the MPEG-2 to MPEG-4 & DVBS-2 switch-off. This is a process which is only just starting in Europe as the leading operators achieve 100% MPEG-4 box swap-out. Eutelsat have acknowledged this could impair Video demand, but argue their key clients in Poland, Italy, Greece are less advanced in box swap-out and so this will be slower to play out.”
The report noted that SES is most upbeat on the video business, but the Bank has issued a Sell advice. “SES were more upbeat on Video, stating they still saw growth; suggesting outperformance vs peers. So why SELL? SES’s geographic exposure is more weighted to Northern European operators where we expect MPEG-2 switch-off, time-shifted closures and OTT pressures to arrive soonest.”
