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1 November 2018

Sky Deutschland signs DTH death sentence with channel cull

A moment the satellite industry has been dreading presented itself this week. Sky Deutschland will soon begin switching off SD channels, in a move which will initiate a ripple effect of DTH closures across Europe. Importantly, the situation is not as simple as a like-for-like replacement of SD for HD. It involves a major restructuring project in which two transponders on the Astra 19.2-degrees East satellite system will be freed up – aka a significant chunk of lost business for Astra owner SES.

In addition to 14 SD channel closures, three HD channels – Sky Select HD, Blue Movie HD and Sky 1 +1 HD – are being dropped entirely from the DTH service and content from Sky Select HD will be shepherded into the on-demand catalog. All in all, the move is a momentous one in the pay TV operator’s transition to its broadband-only TV business of the future – gradually euthanizing the DTH business channel by channel.

D-day for SES at Sky Deutschland has arrived prematurely considering a capacity extension deal was only signed last October, covering seven transponders on the same Astra orbital position, which is home to 450 German channels with a DTH reach of 17.5 million TV households. Transponder leasing agreements are typically long-term contracts, hence our surprise not at the move itself but at the pace Sky is initiating its transformation. A sign of the times conceivably with leasing agreement lengths shrinking?

The trend-setting operator is out pacing those around it and will be the first in Germany to commence an SD cull. German public broadcaster ARD, meanwhile, is expected to begin dropping SD channels in mid-2020, after renewing its leasing contract with SES back in March this year.

Channel closures will also impact Sky Deutschland’s distribution partners across Germany, as Broadband TV News said it learned from some unnamed sources. But the most intriguing part of the announcement is what the extra bandwidth left by the two jobless transponders will be used for. Sky Deutschland has kept schtum and it will be difficult for SES to find replacement business of equal value. Besides, SES is somewhat preoccupied with potentially more lucrative C-band matters over in the US, so we could be waiting some time for clarification.

Having expanded out third quarter results from SES this week (see separate story in this issue), already we are looking forward to sifting through its next financial release to assess the extent of the hole left by Sky Deutschland’s channel closures. Although, due to the characteristic longevity of transponder leasing agreements, any financial impact on SES may not be immediately visible.

The switch offs will also be bad news for smaller technology vendors including those offering uplink services, Media Broadcast Satellite being one example which we know handles six Astra satellite transponders for pay TV provider M7 Deutschland. As well as relying on SES, M7 also leases Eutelsat’s 9-degrees East orbital transponders. Harmonic is another active vendor in the Astra satellite ecosystem, but the US encoding vendor has more than enough business in the streaming video space to offset any shortages in DTH.

With the price per Mbps crashing rapidly, satellite feet operators are facing shrinking revenues per leased transponder and a challenge to charge higher prices for their capacity. Companies like SES therefore must reduce the cost of raw bandwidth to a competitive level to match that of terrestrial. Cost savings will be made through emerging technologies such as electronic propulsion and high-throughput satellites, which can supply 1 Gbps in space for around $3 million, compared to fixed satellite service bandwidth which costs around $100 million per Gbps. But unfortunately for the satellite players, prices are plummeting and channels are closing at a faster pace than the technology itself can be churned out.

Sky will switch all subscribers to HD free of charge on November 15 and can do so because all its hardware in the field has HD compatibility. The 14 SD feeds will then go dark two weeks later on November 29.