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1 November 2018

MX1, C-band save SES from total embarrassment in Q3

Déjà vu struck again as the implosion of the video division at satellite fleet operator SES worsened during the third quarter – again receiving a largely positive market reaction based almost solely on the prospect of C-band riches as a result of selling spectrum to 5G players. There were however a few surprise trends which together provide some extra color regarding how the satellite industry may look in coming years and its immediate implications for video.

What’s more, SES’ financial report landed in the Faultline Online Reporter inbox in serendipitous tandem with a report from the Mobile Video Industry Council projecting that up to 90% of 5G traffic could be mobile video, although it appears to have forgotten a timeframe.

SES Video saw revenue decline 3.5% to €318.9 million, with Video Distribution suffering a 5.5% hit to €239.2 million, offset slightly by a 3.1% growth in the Video Services sector to €79.7 million. We see no particular surprises there considering the latter business houses MX1, its separate streaming technology unit, which impressed us back at IBC, showing how its 360 platform has come along leaps and bounds – now looking like a really serious bit of kit.

As well as supplying its HTML5 video player and VoD asset packaging technology, MX1 has been busy in live sports clipping, integrated with various metadata sources, plus projects such as one with UK pay TV operator Sky for Royal Wedding coverage earlier this year, involving an integration with the Amazon Rekognition platform. So while the broader picture at SES is seeing the scales tip from Video (67% of total revenue, down from 68% last year) towards Networks (now up to 33% of revenues), there is also a mini recovery of sorts happening within the Video sector, spearheaded by MX1 services – albeit a long way off the size of the traditional satellite distribution business.

There also remains a sizable gap between the €242.7 million year to date Video Services sector (up 1.3%) and the €734.7 million Video Distribution business (down 7.2%) and this has continued to dent SES’ share price. Yet there are some uplifting signs. Deutsche Bank analyst Laurie Davison wrote this week, “SES’ invest-to-diversify strategy is paying off; Eutelsat guidance is left exposed. SES has been punished in stock price terms (excluding C-band) for its investment in Video Services/MX1 and O3B over Eutelsat’s pursuit of cuts in capex and opex. But it is now these investments that are preventing SES from missing forecasts and guidance cuts.”

There were certain unspecified non-renewals of legacy contracts in the quarter, soothed partly by new business wins for MX1 which have also not been publicized. MX1 told us at IBC it is delivering services to around 120 platforms, citing German VoD service Maxdome, owned by broadcaster ProSiebenSat.1, as one of its largest deployments.

MX1 also showed off its Ou Flex product at IBC, designed to enhance mobile delivery for broadcasters mainly with a focus on news reporting in remote areas. It recently benefited from adding technology from Smart Mobile Labs to Ou Flex, involving its 5G-ready LTE and WiFi hotspot technology – enabling OTT delivery of HD and UHD content to a specialized mobile app of spectators. Based on Smart Mobile Labs’ Edge Video Orchestrator technology, it allows switching of real-time video streams with low latency through a local mobile network for rebroadcasting and CDN distribution.

SES was relatively quiet in this quarter’s earnings release concerning the proposed sale of C-band spectrum, referring briefly to “strong progress”, by which it means founding the C-Band Alliance earlier this month along with Intelsat, Eutelsat and Telesat, as well as pointing to the FCC’s notice of proposed rulemaking due next week.

SES CEO Steve Collar said the C-Band Alliance will “confirm on behalf of its members that up to 200 MHz of mid-band spectrum will be cleared to support 5G wireless deployment nationwide in the US while protecting the important broadcast and other communities that we serve today. I am increasingly persuaded that our market-based proposal is the best way to facilitate a leading position for the US in 5G and is the only way to repurpose spectrum in a timeframe consistent with the stated goals of the FCC.”

The collapse of the Fixed Data division under the SES Networks arm came out of the blue in Q1 and this continued into Q2, after SES was on a recovery path in previous quarters. It managed to reverse this trend in Q3 though as Fixed Data climbed 5.6% to €57.6 million, helping SES Networks to total growth of 15.6% to €168.8 million in the third quarter.

Crucial to this is the impressive growth seen in the Mobility business, increasing revenue by 36.1% to €41.6 million in Q3, on the back of 31.3% growth in the previous quarter – to overturn a disappointing Q1 in which Mobility revenue dropped by 14.1%. This was primarily in the aeronautical sector so not immediately relevant for the Faultline Online Reporter audience, but a notable takeaway nonetheless.

Despite there being some rare positive takeaways, the negatives for the year to date period ultimately outweighed them, denting total revenue by 3.8% to €1.45 billion, while group Q3 revenue was up marginally by 2.4% to €488 million.