Satellite stocks feel gravity as DTH players desert the skies

Eutelsat and SES may be upbeat about their future after Sky firmed up on plans to offer full OTT packages including all 270 of its channels, but their shareholders seem decidedly jittery. Eutelsat shares fell by 2.3%, while SES which is more exposed to Sky, dropped 5.7% on January 25th when Sky gave details of its launch plans in Europe for the OTT-only version of its Sky Q set top.

Following a recent launch in Italy, the full OTT service, not to be confused with Now TV which only offers some channels without need for a set top, the service will be launched in Italy, Germany and Austria in the first half of 2018, followed by the UK and Ireland later in the year or early 2019. The service will be called Sky Q over fiber in Italy and Sky Q over IP in Germany and Austria.

The share price fall might seem surprising given that Sky was not announcing anything new, just confirming plans first unveiled almost exactly a year ago in early February 2017. Then the SES and Eutelsat share price fell by more, respectively 7% and 5%. In recent months both platform providers have experienced a slow but steady decline in share price driven partly by concerns over their exposure to Sky. In fact, satellite viewing levels have held up quite well in Europe, and Sky has insisted that with the full OTT package it is targeting just the 6 million subscribers across the continent that cannot or will not install a dish. However, there is a clear signal that Sky will be promoting the OTT package increasingly now that one of the main obstacles, the broadband bandwidth deficit, is steadily eroding.

In the US the story is slightly different because although the satellite exodus is really gaining pace, the two DTH operators, AT&T’s DirecTV and EchoStar’s Dish Network, own their fleets. So it is manufacturers rather than platform providers that are affected there. In fact, AT&T saw a huge swing to OTT in Q3 2017 as traditional pay TV subs fell by 385,000 while DirecTV Now, the OTT offering, gained 296,000.

Elsewhere in the world, short and medium-term prospects for satellite TV are somewhat brighter, with subs globally either flat or growing slightly depending on which set of data we believe, driven by expansion in parts of Asia and Africa. It is true that the historic year by year increase in DTH subs globally is tapering off and that we are looking at SVoD, linear OTT and still IPTV for most of the growth.

The satellite industry as a whole remains very buoyant because there are plenty of other major growth sectors. There is continued strong demand for navigational, positional, communications and observational satellites. There is also strong impetus from defense as all the major powers become more capable of knocking out communications and navigational satellites as part of their offence strategies. This is driving demand for defensive satellites, as in the Wideband Global SATCOM system (WGS) planned for use in partnership by the US Department of Defense (DoD) and the Australian Department of Defense.

There is also rapid growth in small satellites defined as weighing less than 500 Kg (including “nanos” under 10 Kg) for a variety of surveillance and monitoring applications, with the market set to reach around $3.5 billion by 2022 by some counts. The challenge for the big platform providers then lies in moving with the market, just as it is for the DTH operators they have served.