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Satellite Operators Face Declining Revenue as Viewers Flock to OTT Services

Strategic Insights

— 2 min read

As the video landscape shifts towards OTT (over-the-top) services, satellite operators such as SES and Intelsat are facing declining revenue and a significant threat to their business model. Deutsche Bank's Fixed Satellite Services industry report highlights that satellite video growth is slowing down, and earnings per share (EPS) for SES are expected to drop 11% below consensus by 2017. The report also recommends a "Sell" advice for SES, citing the company's exposure to Northern European operators, where MPEG-2 switch-off and OTT pressures are expected to arrive soonest.

Key Takeaways:

  • Satellite operators such as SES and Intelsat are facing declining revenue due to the shift towards OTT services, with Deutsche Bank predicting a 11% drop in EPS for SES by 2017.
  • The report highlights that the cost advantage of satellite over DSL delivered content will remain for a long time, but investments are diverting to OTT, putting pressure on satellite operators.
  • SES is investing heavily to grow and expand its existing video infrastructure in Asia, Latin America, and Africa, launching four new satellites next year, but its current total reach in these markets is significantly lower than its existing European operations.
  • Eutelsat and Intelsat have reported video revenue losses in Q3 2015, with Eutelsat citing a 2% loss and Intelsat citing a 1.6% loss, with Intelsat also reporting a $3.1 million aggregate decrease in its Channel services.
  • Intelsat is facing significant debt, with a total of $14.76 billion, and is planning to shed its assets to pay off some of this debt and free up cash for HTS (High Throughput Satellite) investment.
  • Eutelsat's share price is looking more comfortable at €30.33 ($32.52) and SES sits at €26.39 ($28.30) per share, while Intelsat's share price has plummeted to $6.23.

Statistics:

  • SES' revenue is expected to drop 11% below consensus by 2017 (Deutsche Bank report)
  • Eutelsat reported Q1 2016 revenue of €388 million, which exceeded forecasts
  • SES saw Q3 2015 revenue of €494 million, a fractional €3 million below Deutsche Bank's own forecast
  • Intelsat recorded Q3 2015 revenue of $580 million
  • Eutelsat and Intelsat are the only companies that report video separately in financial statements, with both seeing a 2% loss in Q3 2015
  • Intelsat's debt total is $14.76 billion
  • Eutelsat's share price is €30.33 ($32.52) and SES sits at €26.39 ($28.30) per share

Sources:

  • Deutsche Bank's Fixed Satellite Services industry report
  • Faultline
  • SES
  • Intelsat
  • Eutelsat
  • Time Warner (HBO, CNN and Warner Brothers)

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