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5 May 2022

Sky renews SES vows in temporary blip for all-IP video plans

Sky was supposed to do away with satellite TV delivery by now, testing its all-IP video model in Switzerland back in 2017, ahead of Sky’s streaming revolution spreading across Europe like wildfire. So why has the Comcast-owned operator just inked another landmark satellite capacity extension deal with SES in the UK and Republic of Ireland, running until 2028?

A gross misjudgment has been made by Sky, that it could waltz into the streaming octagon unchallenged by technologies and market headwinds. Don’t get the wrong idea, for the transition to IP-based, set top-free viewing is well underway, as evidenced by last year’s release of the Sky Glass smart TV, among other streaming devices. Yet the realization by Sky that it requires prolonged reinforcement from SES’s multiple transponders for delivering live TV channels, particularly UHD content, is significant.

At 18 million TV homes, the reach is significant too. As is the check, adding €84 million ($88.6 million) in secured backlog to SES’s books, on top of the €90 million ($95 million) contract signed with Sky in 2021.

We feel it’s necessary to emphasize that while this is a handsome payday for SES, it is not the transformational turning point for satellite TV that the press release alludes to. Just look at the graph below, plotting not only the decline of SES video revenues over the past five years, but the impact this is having on total group revenues. SES has struggled to offset the loss of business from TV channels switching off entirely or migrating online.

Dialing into the SES Q1 investors call a few hours before going to press, we heard CEO Steve Collar describe the Sky extension as the most significant recent move for the video business, which now serves 365 million households. He claims the trajectory of the SES video business continues to improve, with revenue down 6.6% year on year, when what he really means is that the decline in video revenues is slowing down slightly.

The ending of wholesale deals in the US market has had the greatest impact on SES, with the latest being the termination of its deal with Dish Network. However, a silver lining is that this transitioned to doing business with Dish Mexico, according to Collar, who also mentioned a major C-Band spectrum mobility deal with Verizon worth $170 million.

Collar also claims pricing remains robust in all core markets, reflecting the sustained value of satellite delivery.

We mustn’t forget that SES itself has an all-IP video project, with its HD+ TV platform being unbundled from satellite for delivery in parallel over the internet.

HD+ IP was initially only available on select smart TV sets but has since gone multi-platform with HD+ ToGo, with 80 HD channels available to stream on smartphones and tablets.

For Sky, lessons have been learned from the debacle in Italy which saw sports streaming disruptor DAZN snatch Serie A soccer rights from the traditional grasp of incumbent pay TV operators – triggering thousands of user complaints, countless cancellations, a few lawsuits, and eventually government intervention.

However, the installation of a DTT back-up option was a sign from the very beginning that DAZN had bitten off more than it could chew, partnering with TIM to keep Italian viewers on side. Of course, DTT makes use of conventional antennas for OTA signal delivery, not satellite dishes, so this is of little benefit in the context of SES.

Meanwhile, for OTT video delivery over fiber networks, multicast ABR technology from Broadpeak was brought in to tighten up QoE.

Sky is a company that embraced all-IP video delivery well ahead of the curve, with Italy being one of only two countries ditching traditional DTT delivery, along with the Sky X platform in Austria, which has been around as an IPTV platform since 2019.

Sky’s ambitious broadband-only TV initiative also kicked off in Italy from summer of the same year, following a deal allowing Sky Italia to access Open Fiber’s FTTH network in 2018. The deal with Open Fiber, a venture of state-controlled power utility Entel, had aimed to bring Sky Q services to 271 urban parts of Italy by 2022.

TIM was forced to respond to Sky Italia by investing hard and fast in fiber infrastructure – perhaps foreshadowing this deal as a way for it to upsell superfast broadband services together with DAZN streaming packages. TIM had aimed to create a single broadband network by merging with Open Fiber, although this ended up with the two parties engaged in a legal battle.

 

Sky isn’t alone in these all-IP ambitions. Israeli pay TV operator Yes, part of the Bezeq group, springs to mind as one with big plans to ditch satellites by 2026. Going all-IP is much easier as a cable TV operator with owned infrastructure, particularly when the network footprint has been overlayed with fiber, with Comcast and Liberty Global being two of the world’s cable titans to launch all-IP streaming devices for the home.

This migration towards all-IP will also help usher in personalized services and targeted advertising, with ability to harness customer data more effectively. However, SES will be hoping that others, like Sky, come face to face with streaming roadblocks that give them little option but to reaffirm their commitment to satellite delivery, albeit temporarily.