Introduction to Latin American Direct-To-Home Satellite Television Services:

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Latin American Direct-To-Home Satellite Television Services

(Report A339-66)

Analyst PresentationOctober 1, 2002

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Introduction to

Latin American Direct-To-Home Satellite Television Services:

A Face Off Between Two DTH Powerhouses

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Latin American DTH Services Market

• Frost & Sullivan’s forecast of DTH subscribers and revenues for overall Latin America and five individual countries

• Argentina

• Brazil

• Chile

• An overview of the competitive landscape• 26 cable, MMDS and DTH companies are profiled and

assessed

Benefits of this Study

• Mexico

• Venezuela

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• An analysis of the specific satellites used for DTH services in Latin America and number of transponders employed

• Profiles of the satellite operators whose satellites are used for DTH services in Latin America

Benefits of this Study (cont.)

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•Sky and DIRECTV Latin America are in a dead-heat for subscribers in the overall Latin American market.

•Sky and DIRECTV Latin America are fighting to maintain growth in the difficult economic situation found throughout the region.

Where is the market today?

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Revenues for DTH Market in Latin America

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• Projected that DTH services will lose up to 26% of their subscribers between 2001 and the end of 2002.

• The dollar-based ARPU will continue to drop in Argentina through 2002 due to the currency devaluation.

• Cable is estimated to see a decline of 5% of overall subscribers between 2001 and 2002.


Market Overview for Argentina

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• Expect that drops will level off in late 2002/early 2003. Sub and ARPU numbers will stay flat through the end of 2003.

• Assume that Argentina will start to recover in 2004 and this recovery will peak in 2005 with growth continuing through to 2008.

• DTH subscriber numbers should bottom out in 2002 and are forecasted to grow to over 600,000 by 2008.


Market Overview for Argentina (cont.)

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• 2002 will have flat growth at best for most cable, MMDS and DTH service providers

• The devaluation of the Brazilian Real has hurt all pay-TV players on two levels:• programming costs are paid in US dollar

denominated contracts, but revenues are in Real• Brazilian government has strictly limited the ability

of pay-TV service providers to raise prices in order to get back on a pre-1999 level


Market Overview for Brazil

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• Assume the Brazilian economy continues to stay depressed into 2002 and 2003 will start to show some recovery

• Project over 2 million DTH subs by 2008


Market Overview for Brazil (cont.)

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• Most economic forecasts predict steady growth for the country only a few years following its 1999 recession

• Since DTH services were new, they succeeded in growing through the 1999 downturn

• Cable and MMDS market as a whole registered a 2% drop in subscribers between 1998 and 1999


Market Overview for Chile

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• The cable and MMDS subscriber numbers improved by 6% by the end of 2000 and are projected to show continued steady growth throughout the forecast period.

• DTH is expected to grow to just under 1.5 million by 2008 with DTH taking in 21% of the total pay-TV subs


Market Overview for Chile (cont.)

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• The cable industry is projected to remain balkanized for the foreseeable future

• The government's focus on more pressing issues will slow any efforts to truly address the piracy problem faced by legitimate pay-TV services in the country

• These factors will diminish the potential market for DTH service within the Columbia and restrain significant growth for years to come


Market Overview for Colombia

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• The economy has been in recession for some time now, mostly due to the major slow down in the United States

• The poor economic conditions have caused a significant deceleration, even decline for some providers, in pay-TV subscriber additions.

• Frost & Sullivan forecasts that pay-TV subscriber growth will be flat through the end of 2002 and into 2003


Market Overview for Mexico

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• The market is then expected to pick up by the end of 2003

• By 2008, Frost & Sullivan projects that pay-TV penetration will increase to somewhat more that 24% of Mexican TV households

• Approximately 1.5 million subs are forecast to be signed up to a DTH service by 2008


Market Overview for Mexico (cont.)

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• In recent months the political situation in Venezuela has become increasingly unstable and investment has slowed to a near trickle

• In regards to pay-TV services, the forecast assumes that growth will slow through 2004 due to weakness in the economy related to the ongoing internal conflict in Venezuela


Market Overview for Venezuela

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• Growth is forecast to return in 2005, albeit at levels somewhat slower than the 1998 to 2002 period

• At the end of 2001, there were an estimated 336,000 DTH subscribers up from 111,000 in 1998

• This figure is expected to rise to over 500,000 by 2008


Market Overview for Venezuela (cont.)

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DIRECTV Latin America& Sky

2002

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• Originates in a Nov 1995 agreement between News Corp, Grupo Televisa, and Globo Comunicações e Participações. Liberty Media Corporation later joined these partners

• Partners formed separate operating companies for the following markets:

• Mexico in 1996 through Innova S. de R.L. de C.V.

• Brazil in 1996 through Net Sat Serviços Ltda.• Colombia in 1997, Chile in 1998 and Argentina

in 2000 through Sky Multi Country Partners• closed its operations in Argentina in July 2002 citing the

economic difficulties there


Sky in Latin America

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• DLA is a subsidiary of Hughes Electronics Corp., Darlene Investments, LLC (an affiliate of the Cisneros Group), and Grupo Clarin S.A.

• DLA states that it reaches a total of 28 different markets in Latin America and the Caribbean

• To manage sales and customer services on a country level, partnerships have been made with "local operating companies" or LOCs

DIRECTV Latin America (DLA)


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• Hughes owns controlling interest, either directly or through DIRECTV Latin America, in local operating companies in Argentina, Brazil, Mexico, and Colombia

• Some of the major LOCs are:• Galaxy Entertainment Argentina S.A.• Galaxy Brasil, Ltda.• Galaxy Entretenimiento de Colombia Ltda.• Grupo Galaxy Mexicana S.A.• Galaxy Entertainment de Venezuela

DIRECTV Latin America (DLA) (cont.)


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Market Share - A Dead Heat!


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• Sky pursues a country-specific strategy that focused on controlling the most popular content in the biggest markets• Sky leads in the two biggest markets in Latin

America, Mexico and Brazil, where 90% of its subs are located

• DIRECTV Latin America serves as many markets as possible in order minimize risks related to difficulties in any one country• DLA offers service in 28 countries, while Sky is

only operating in four

Differing Strategies Yet Equal Success


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• Answer is probably neither!!!• Much depends on proposed Echostar/Hughes

Electronics merger• If merger is approved, the companies will

probably continue competing against one another

• If merger is called off, News Corp will (probably!) renew its bid for Hughes, if successful (big if) there may or may not be merger in Latin America. Regulatory agencies in Latin America will like a DTH monopoly in their country no more than US regulators would.

Who Will Come to Dominate the Market?


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• The Short Answer is probably YES!• Our forecast predicts DTH subs to reach about

5.5 million by 2008• Assuming a more or less equal split, that gives

each operator over 2.5 million subs• DIRECTV Latin America has stated in the past

that it needs something over 2 million subs to break even

• Innova in Mexico is reportedly hovering around EBITDA break even and show go positive when the Mexican economy picks up

Is the Market Big Enough for Both Companies?


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• However, Sky Multi-Country Partners may not last long term and Sky will need to concentrate on Mexico and Brazil leaving the rest of Latin America to DLA

• Also, DLA sorely needs a partner with popular content in Latin America and will continue to have difficulties without that

• Could we see an eventual partnership of DLA and Sky in Mexico and Brazil???

Is the Market Big Enough for Both Companies?(cont.)


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Frost & Sullivan Worldwide

• Industry analysts in F&S research offices in:• North America (Silicon Valley, New York, San Antonio,

Toronto)• Europe (London, Paris, Frankfurt)• Asia (Singapore, Beijing, Mumbai, Kuala Lumpur, Tokyo,

Sydney)• Latin America (Market analysts in Argentina & Brazil)

Frost & Sullivan employs approximately 500

consultants, analysts, corporate trainers, and

support staff members to provide market consulting

and corporate training services to its clients in more

than 50 countries

Documents

Introduction to Latin American Direct-To-Home Satellite Television Services: