TV Channels Putting RRSat Into Their Picture
Do you want to know what's going on in Mali? As of this year, all you have to do is tune in to your TV.
In December, the West African country's national broadcasting agency made a deal with RRSat Global Communications Network RRST to provide the agency's programming to North America via satellite. That sort of deal is RRSat's bread and butter. The Israeli company distributes some 425 channels in 150 countries, many of them small channels from out-of-the-way places that can't afford to build their own networks.
With less than $80 million in revenue last year, RRSat's business isn't huge, but sales jumped 33% last year. And quarterly per-share profit has held fairly steady near 20 cents despite the recession.
CEO David Rivel recently explained his business to IBD.
IBD: In this economy, where do you see your opportunities for growth?
Rivel: I have a very simple answer. The services we provide to our customers are very critical for them. We provide the service, and we distribute their content to their customers: to cable operators, to DBS (direct broadcast satellite) operators, and ITV (Internet TV) operators.
This is the most important part of their operation. Any channel, during a bad financial time, will try to save their operation costs. They will try to buy less programs. They will try to fire some people. They will try to save a lot of other expenses, but they will not touch the most important thing -- their transmission. Without our services, they would not exist at all.
Until now, we haven't seen any movement (of customers from RRSat). We see the opposite: a lot of new requests from channels to provide their services. (A lot of these stations) use a local operator, but they know that by using our system, they will just pay a fraction of their existing costs. It's not easy for them (to go outside the local operator). They do that only when they feel they are under pressure (to cut costs).
IBD: Are there any geographic regions driving your growth?
Rivel: Our network is global. As big as we are (getting), we see more requests from bigger and bigger operators. Right now, we are negotiating with tier-one content providers. A few months ago we closed (a deal) with Sony SNE (to distribute) one of their channels that they transmit to Russia.
From the point 15f view of geography, we have a very strong presence now in the U.S. because we acquired the Loral Skynet facility in Pennsylvania (in May). We have a bigger team right now in the U.S. I hope they will be able to bring more deals, because we see a lot of requests from the American side.
IBD: That was your first acquisition in North America. What did that bring you?
Rivel: The main idea to operate our own facility in the U.S. was our need to move existing services that we provide through outsourcing through other teleports around the country. The idea was to bring all the services into our facility, to have all the control and enough space and equipment to provide more services. After only a few months of operation, we've already transferred all the operations we had in other teleports (facilities that relay satellite transmissions).
In the second acquisition we did (last year) here in Israel, the strategy was the same. But together with (acquiring) the facility we offer services from one of our competitors, Bezeq. They transferred to us all their broadcasting activities. As well, they transferred (the ability to offer) Inmarsat, a global network for transmission of phone, fax and Internet activity.
IBD: So your network is expanding beyond television?
Rivel: Everything is digital today. For us to be involved in other activities is very easy because we operate a digital platform. We use multiplexing that gives us the possibility to not only (provide) television services, but also data services. It does not make any difference what we transmit in the stream.
IBD: Apart from Sony, what other recent deals are most significant to the company?
Rivel: We had a very nice press release (on Feb. 11) which was very important for us. AsiaSat, which is an operator with a few satellites over Asia, Fashion TV and our company (launched) a new high-definition channel for Asia.
HD is a very important factor for development. All our facilities are ready for HD. The difference between HD and the standard definition is only the capacity that the channels use. For us, more capacity is more revenue. I believe in a very short time all the standard definition channels will move to HD channels, which will permit us to grow revenue and profit.
IBD: Are any other technological shifts affecting your business?
Rivel: We profit always from any development in technology.
Years ago, the old technology was analog. Only a very strong TV was able to transmit through a satellite because they needed a full transponder (a device used to transmit signals) for one channel. Today, everything is digital, and we are able to transmit on one transponder, in a regular MPEG-2 technology (a standard for video compression, to allow for transmission), between 12 and 20 channels.
The new technology is MPEG-4. MPEG-4 (can) include on the same transponder 20% to 50% more TV channels. The expenses remain the same.
