For the last two years, the satellite market in Latin America has seen substantial growth due to, among other reasons, the 2014 FIFA’s World Cup, which bought the world’s attention to Latin America. DirecTV alone reported 35 percent growth in its earnings due to the high demand for sports broadcasting. It is worth noting that DirecTV’s Latin America operations correspond to almost 20 percent of the company value. Last year, a report from the Brazilian telecoms regulatory body, Anatel found that in 2014 the pay-TV market grew 8.65 percent, with Telmex having close to 52 percent market share, followed by Sky, with 28.8 percent.

Pay TV remains the most important driver for the Latin American satellite market, according to analysts from Frost & Sullivan. A report from this firm released last October points to a steady upward trend, based on an increased demand for value-added services, such as HD and video on demand. In 2013, the pay-TV market saw total revenues of $20.43 billion, and that is expected to rise to $30.91 billion in 2018, according to Frost & Sullivan’s report. The projection of growth in the number of subscribers is expected to go from 55.9 million in 2013 to 86.1 million in 2019, when the household penetration will hit 57.9 percent across the region.

“TV broadcasters and programmers that distribute content to cable headends constitute a very large and stable user base for satellite capacity in Latin America — particularly in C band — and they will continue demanding satellite spectrum for both TV distribution and contribution,” says NSR analyst Carlos Placido. DTH remains tied strategically with the needs of major telcos that need to offer competitive pay-TV packages to compete against cable operators.

Capacity Demand

Analysts Georgia Jordan and Maiara Munhoz, of Frost & Sullivan, say the demand for satellite capacity is on the increase in the region — especially for Ku band, while the demand for Ka band will likely accelerate after 2016 with players such as Hughes and Telebras interested in expanding the broadband market through satellite.

The relationship between major telcos and DTH is an interesting one to watch in the region. In 2014, Telefonica acquired GVT, a major event in the DTH arena in Brazil. “I envision a stronger DTH play by major telcos seeking synergies with their broadband offerings. Nothing beats DTH in terms of last-mile broadcast economics, so DTH bundled with broadband is a strong strategic choice for telcos competing against cable companies. Also, there will be more emphasis on cross-platform bundling, particularly for fixed and wireless services. Telcos will use this to differentiate against cable,” Placido says.

Sercomtel, the last government-owned telco in Brazil that currently provides landline, mobile, long distance and Internet services in the Parana state in Brazil, agrees. According to Sercomtel President Christian Schneider, the company plans to expand to 50 more cities in Parana on the next couple of years and then target Sao Paulo and Santa Catarina, which Schneider believes need a strong pay-TV player for the rising demand for bundled services.

“We tend to move slowly toward DTH. Answering this demand is fundamental to our strategy. Not being able to provide a bundle with pay TV is limiting our market growth. And DTH is the most competitive and fastest way to answer that demand, rather than installing cables,” says Schneider.

Even though the Brazilian market is starting to slow down, there is still a lot of room to grow especially in regions where cable TV is not an option. “There is a huge opportunity for DTH,” Jordan and Munhoz agree. Claro and Sky plan to launch new satellites in the next couple of years to meet this new demand.

Remote Regions

GVT, now owned by Telefonica, wants to bring the benefits of satellite pay-TV services to remote regions of Brazil. “We want to deliver a high-quality service, a complete product — HD content, on-demand, interactive apps, all on multiple platforms,” said a senior executive at GVT who wished to remain anonymous. In Brazil, GVT was one of the first companies to deliver HD services to customers. They reckon, though, that the whole market will have to adapt to offer technologies such as 4K.

“The TV set replacement cycle has been more recent in Latin America, so consumers will wait to replace their HD LCD screens for 4K-capable ones,” admits Placido.

According to Frost & Sullivan analysts, once the market gets used to better quality, it will be hard to go back to old standards, and that applies to HD and then to 4K. Even though hardware prices are still high to the end user, there is plenty of room for those technologies to grow — especially considering the 4K demonstrations we are seeing at big sports events such as the FIFA World Cup and the Olympic Games to be held in Rio de Janeiro in 2016.

“The Olympics in Brazil could help give 4K a bit of a push in Latin America and globally,” says Placido. Lack of content is an issue right now; however, GVT says that these technologies can also help shape the telco and pay-TV market in terms of future growth.

Another challenge for HD and 4K in Latin America is that, while there is improving infrastructure, the regulatory situation does not necessarily make it easy for telcos wanting to invest in 4K. In Brazil, for example, the government regulates telcos; the national agency fixes prices, while still keeping taxes high. “Companies in this market face challenges about investing in infrastructure and improving quality of service and, at the same time, meeting shareholder’s expectations,” says Schneider. In order to circumvent that, he suggests balancing the demands and pricing using bundles.

Long-Term Opportunities

“I think no one would disagree that the broadcast market is going through one of the most profound transformations, since the arrival of broadcast TV itself. The Internet is the new broadcast medium and is transforming both entertainment and telecommunications. Convergence has pushed every player toward a multi-screen, multi-platform delivery environment and this is also affecting broadcast marketing,” says Placido. “Broadcasters and cable companies will continue leveraging satellites for the reception of TV programming. TV contribution and occasional TV will continue being shaped by the economic challenges of point-to-point transmissions.”

With the arrival of HTS capacity, and as it becomes more ubiquitous, it could prove a viable alternative for SNG contribution feeds, Placido adds. “Broadcasters are very pragmatic and are always doing the exercise of considering all available options for TV content contribution: from deploying fiber to sports venues, to using cellular networks with channel-bonding technology. C band is largely used in Latin America for primary TV distribution, and it will be vital for the Latin American broadcast and satellite communities to join forces in order to protect C band from the insatiable appetitive for spectrum that mobile network operators have.” he says.

Frost & Sullivan suggests mobile backhaul is going to be a big driver in the future with telcos expanding their 4G coverage in the region. The launch of more HTS in the region could also be the catalyst for more growth.

How OTT will impact the market?

Over-the-top (OTT) is already extremely significant in Latin America. Sercomtel’s Schneider says it’s a big challenge for telcos as they look to monetize their deployed networks and search for partnerships with content companies to drive these types of services.

Schneider believes Sercomtel will need a mixed solution since currently deployed backbones have a limited capacity. Claudio Mastroianni, former Telespazio Brasil CTO and current market analyst, agrees on the mixed solution: combining DTH and OTT.

According to Placido, companies such as Netflix still don’t compete fully with cable TV or DTH, and that it’s growth will be largely shaped by macroeconomic conditions and variations in disposable income levels. Frost & Sullivan predicts that OTT services will be worth $147 million to telcos in the region, which corresponds to less than 1 percent of the total revenue. But the firm expects that impact to grow over time, with the growing demand for on-demand content on any platform.

Telcos, however, are already trying to fight that market penetration by offering value-added services integrated into their portfolios, such and Video-on-Demand (VOD) products with a higher quality of service, besides multi-play bundles and association with content producers. In Latin America, Frost & Sullivan expects the OTT market to make $783 million in 2018. To put this into context, in 2013, the OTT market was worth only $96 million. VS

Ana Freitas is a freelance writer who has written extensively on the technology and mobile markets in Brazil.