A Future in High Definition

Looking ahead, the picture PanAmSat execs see is crystal clear
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Top PanAmSat executives can't wait to see the flowering of high-definition tele
vision that is just beginning on broadcast and cable networks in the U.S. They think they'll play an important part in making it happen.

In fact, PanAmSat believes that the television industry's accelerating migration to HDTV, more than anything else, will drive growth in PanAmSat's core satellite-delivered video business over the next few years.

"We see that as changing the whole broadcast infrastructure," says Mike Antonovich, executive vice president of global sales and marketing for PanAmSat. He notes that the company has already lured 17 of the 24 established HDTV channels, creating an HDTV "neighborhood" in the sky. It did the same with clusters of analog and digital cable channels in the past.

Scrambling to respond to this trend, PanAmSat is launching new satellites and upgrading and replacing its older ones for high-definition transmissions. In October 2003, the company sent its new Galaxy 13 rocketing into orbit over American skies to be what it calls the "cornerstone for the first U.S. HD neighborhood, as well as a new cable neighborhood for video services." Galaxy 13, equipped with 24 C-band and 24 Ku-band transponders, took the place of the older Galaxy 9 bird, which has become an in-orbit spare.

In fact, the upgrade satellites are part of PanAmSat's aggressive strategy to attract HDTV channels to its neighborhood. Plans call for Galaxy 14 to launch in December or January, Galaxy 15 next summer and finally Galaxy 16 sometime after that. The company has scored well with this clustering concept in recent years, most spectacularly with the development of its five-satellite cable neighborhood over the U.S.

"We see [HDTV] as a new service that our customers and consumers are interested in," says James Cuminale, PanAmSat's veteran general counsel and chief of strategy. "It's still in its early stages. It's going to grow rapidly."

PanAmSat is designing many of its replacement satellites for the one burgeoning video category, HDTV. For instance, it's promoting both Galaxy 14 and Galaxy 15 as HDTV upgrades for its huge roster of U.S. broadcasters and cable programmers, which includes A&E Networks, CNN, Discovery, Disney, ESPN, Fox, HBO, MTV, Reuters, The WB Network and USA Networks.

"We think that that's the next wave of video services," says Cuminale. "We're trying to figure out how to meet demand. We will probably need more capacity."

With few new prime orbital slots left, particularly over the U.S., one key way that PanAmSat officials aim to create more capacity is by switching over satellites now used for older analog services. As the cable and broadcast networks make the migration over to all-digital and HDTV transmissions, PanAmSat will make the migration as well.

"We'll convert analog slots over to HDTV and use greater compression schemes," says Kurt Riegleman, vice president of North American sales for PanAmSat, ticking off such advanced digital compression technologies as MPEG-4 and Windows Media. "I think over time you'll see most networks look at how to convert over to high-definition. I think you'll end up with most of television in the U.S. going to high-definition."

As has happened with standard digital transmissions, PanAmSat executives believe, TV programmers will use HDTV to develop even more channels than before. For instance, Riegleman can see Discovery converting all of its analog and digital networks to HDTV channels and then still creating more.

"They'll push more down that pipe," he says. "I think it's going to be a major growth factor for the United States."

Besides the expected surge in HDTV channels, PanAmSat executives think that further growth will come from the development of more ethnic and foreign-language channels, both in the U.S. and the rest of the world. As it becomes less expensive to create and launch networks on satellite, they expect a rise in Eastern European, African, Vietnamese, Laotian and other channels from the lesser developed parts of the world, to cite just a few.

"I think we're going to see more and more ethnic channels coming into the States and vice versa," Riegleman says. "There's a lot of interest in it right now."

With their new, more advanced replacement satellites, PanAmSat executives also see promise in the delivery of temporary, short-term digital-video services. Instead of leasing out transponders purely through the standard long-term contracts with major customers, they envision renting at least some of the satellite space out in quick "slices" of bandwidth to smaller companies and consumers.

Mike Antonovich, executive vice president of global sales and marketing, calls it "bandwidth by the drink." He says PanAmSat will use this new capability to satisfy the thirst of customers who need bandwidth only in short, quick bursts, not on a continuous basis." Now you will be able to buy just as much as you want for just as long as you need it," he says. "That offers more flexibility to our customers."

The company has already launched this pioneering service in North America and Asia, offering customers the ability to use portable and fixed antennas to transmit images over satellites. This new "shared-hub" product allows users to plug a wireless phone, digital camera or another mobile gadget into a small dish and send the signal or image to someone else. "People can instantaneously buy bandwidth," Antonovich says.

In addition, PanAmSat officials anticipate the development of new content-distribution networks based on emerging Internet Protocol (IP) technology. The list of potential services includes high-speed data and IP video, a hot area of development in the cable industry right now.

Among other things, Galaxy 13 features the capability to carry IP-based services. The company's future satellites will have that capability as well.

"A lot of people are looking to backhaul content and load it over the Internet," Riegleman says. "There are just going to be a lot more options and technologies."

He notes that one of his company's newest customers, U.S. Digital Television (USDTV), is now using PanAmSat satellites and the excess digital-broadcast spectrum of local TV stations to beam a package of popular cable channels to subscribers. Selling the service and special set-top boxes through Wal-Mart stores and other retailers, USDTV is also using the satellites and spectrum to offer high-speed Internet access to its customers.

Beyond new video services, PanAmSat executives believe that growth will come from the development of more broadband services like the one that USDTV has introduced. With cable and phone companies unable or unwilling to wire all regions for high-speed data because of the great expense, company officials see their satellites extending broadband to lesser developed countries and rural parts of the U.S. and other industrialized nations.

"We all think there's a place for satellite in broadband services," Cuminale says. "It allows you to communicate with a broad footprint without a huge infrastructure. It's an instant infrastructure."

In the longer run, "We have to go and just focus on our business plan," Wright says. "I think it's one of the greatest business models I've ever seen. Where else can you get a 74% EBITDA [earnings before interest, taxes, depreciation and amortization] if you manage the business correctly?"

The sky is
the limit.

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