SES clutches at Kartina TV straw as OTT-DTH trend-bucker

In entirely expected news, SES recorded a third quarter video revenue slump of 6.4% from the previous year, in fact an improvement from the previous quarter’s 10.4% shrinkage, but ultimately culminating in an 8.1% year to date decline. Should this be perceived as an unlikely sign of recovery at SES Video or rather sustained instability within the satellite fleet operator’s core business?

Going by Faultline’s conversation with SES at IBC 2019, the company would want us and our readers to believe the former, although the latter is the reality. Video revenues are veering precariously on the €300 million a quarter mark, with Q3 video revenues coming in at €302.2 million compared to €300.5 million in Q2.

This appears steady but the annual picture is one of €16.7 million in lost revenue from Q3 2018 to Q3 2019, while €33.6 million in revenue evaporated from Q2 2018 to Q2 2019. Net profit is a concern, ducking sharply by 17.7% to €249.9 million for the last quarter.

One of the most pressing matters in SES’s Q3 was completing the combination of its infrastructure and services capabilities, whereby the MX1 video streaming technology division was sucked back inside SES Video as if it was never given freedom in the first place.

As we highlighted at the time, this is more a reversal of a merger – unravelling what arose from the initial combination of RR Media with SES Platform Services in July 2016 which birthed MX1, following the acquisition of RR Media by SES for $242 million. SES can dress this up any way it wants but it cannot escape the fact it has caused a whole lot of confusion. In truth, the cloud technology clout of RR Media was the first public sign of SES actively embracing OTT video to offset the freefalling value in traditional satellite TV distribution.

As for updates, the discontinuation of certain low-margin legacy services in the third quarter held back the positive contribution from other, more value-added products and services (such as sports), according to SES, which meant MX1 revenue was down.

Referencing his favorite topic OTT, SES Video CEO Ferdinand Kayser pointed towards Russian media firm Kartina TV during the earnings call, describing the company as “an interesting development because it’s not the first time that an OTT operator is going in the other direction.” What he means is that the general trend is for satellite DTH customers to start offering OTT services in parallel with their core offerings. In the case of Kartina TV, an online video customer, apparently it recently realized that in major markets like Germany, the broadband penetration is still not strong enough to allow for ubiquitous coverage. Therefore, satellite delivery allowed Kartina TV to capture additional subscribers, according to SES.

Indeed, this is an interesting example particularly in a developed region like Germany, but how many cases of Kartina TV do we think there are for the opposite scenario, such as lost wholesale contracts in the US? 5? 10? 20? The balance is tipped in favor of DTH to OTT, not the other way around, despite the odd exception.

Mobility was the strongest performing SES sector again, boosting revenue by 21.7% to €52.7 million, while networks was the second placed performer at a 7.2% year on year rise to €188 million.

Other video highlights from the quarter include launching a dedicated TV platform in Ethiopia, securing important renewals in its core neighborhoods; and the introduction of new products such as the Satellite and OTT in sync. SES also inked a major managed cloud playout extension deal with Microsoft Azure and the further development of its in-house orchestration platform SES 360.

Video distribution took the brunt of the damage in SES’s third quarter, to the tune of 7.1% to €225.1 million, while video services was down 4.3% to €77.1 million. This was from group total revenue of €490.6 million for Q3, down 1.6%.