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2 May 2019

Lumps knocked out of SES Video as 3m homes vanish

SES took issue with our NAB coverage following a conversation with its streaming technology division MX1 whereby the demise of satellite TV, a regular coverage area here of course, was discussed front and center. Faultline Online Reporter implored the satellite fleet operator to counteract our conclusions by offering a crumb of evidence against the trend of satellite transponder usage shifting from TV to other forms of data communications in key markets (India for example being one exception). Suffice it to say SES didn’t deliver, but thankfully results season has come back around – providing all the evidence we need.

Total video revenue at SES declined by 6.2% to €304.1 million in Q1 2019, due mainly to a fall in video distribution revenue of 7.3% to €229.2 million, while video services revenues saw a 4.5% hit, primarily in the North American wholesale business. As with previous results, we prefer to assess the SES picture by the swing in revenues. Video now accounts for 63% of SES group revenue, falling from 68% a year earlier – the largest decline in share to date. In 2014, Video accounted for 66% of SES group revenue, climbing to 67% in 2015, then up to 68% in 2016 and flat at 68% for 2017 and 2018. A clear and obvious regression.

In the eyes of everyone apart from SES, that 5% shortfall says the business had a particularly turbulent year in video, as focus continues to shift gradually to pastures new. No surprises then to see the Networks arm contributing 5% more to group revenue compared to Q1 2018, at a 37% share. Networks revenue increased by 15.3% to €176.4 million, driven by growth of 31.3% in the Mobility division to €49.2 million and a 15.3% spike in the Government sector to reach €68.5 million. Fixed Data revenues increased by 4.6% to €58.7 million, all in all showing very healthy revenue growth in Networks.

We reserve an element of sympathy for SES in rushing to defend its core business, yet the irony in attacking our positive coverage of MX1 in doing so, where we emphasized the growing significance of the division within the SES behemoth, is glaring when the company is currently in the throngs of integrating the SES video infrastructure business into MX1. The inherent goal of this cohesion effort is to enhance the struggling SES video unit, a project which kicked off in the first quarter and was touched on briefly at NAB last month. This is “progressing well” with completion expected by Q3 2019.

However, not all is going as smoothly as we were led to believe at NAB. First quarter results revealed how certain “legacy” services at low margins were discontinued at MX1, triggering lower year on year revenue. SES says this has continued to hold back the contribution from customer adoption of the MX1 360 platform and the sports and events businesses which is reportedly gaining traction.

SES cited one particular unnamed North American deployment as issuing a hammer blow to video revenue, as its North American reach was reduced by 3 million TV households to 72 million, while European reach was flat at 167 million. Internationally, SES said it increased to 116 million TV households without specifying by how much.

As usual, SES likes to talk about increased reach, growing to over 355 million households (approximately 1 billion people) and increasing channels by 7% year on year to 8,289 across its video neighborhoods globally, although we know these are lower value households than those being lost to cord cutting across North America and Europe.

There were some notable new broadcast deals for SES in the quarter though, in the form of Discovery, Nordic Entertainment and Crown Media, and SES also highlighted expansion of its international footprint with new partnerships, such as one with Benin in West Africa. SES also noted its technical reach in emerging markets within Africa, Asia Pacific and Latin America.

Overall, SES is now distributing 2,828 channels in high definition (up 6% year on year) and 43 commercial Ultra High Definition channels (up 34% year on year). It says 67% of total TV channels are now broadcast in MPEG-4, or 70% also including HEVC.

So, when SES asked us to remove the headline we ran at NAB reading “SES brings MX1 to the fore at NAB as satellites slide away” a few weeks ago, our response was one of bemusement given how the headline not only perfectly summarizes the essence of the discussion at the time, but also mirrors a strategy echoed by SES itself in its very own reports.