SkyStream smoothes service enhancements

March 2002 With the communications technology market emerging from one of the biggest slumps in history, Broadband spoke to SkyStream Network's CEO, Jim Olson, to canvass his opinion on growth markets in 2002

Jim Olson

What is the recent history of SkyStream Networks?

We were formed in Silicon Valley in 1996 with a vision to build routing and software technology that could take advantage of the explosive growth in the Internet and the digitalisation of content - specifically video content - that needed to be delivered to users that were thirsting for richer services.

We wanted to build the technology that connected rich content, either information or entertainment with users, wherever they were and on whatever network device they were, by solving all the network connection problems between that content and the user.
We started funding in early 1996 and introduced our first product in 1998. One of our first customers was Kingston Satellite Services in the UK. Since then, we have done another three rounds of funding and today we have over 200 customers.

What products and services do you offer?

We have two routing products; one is the Source Media Router, which routes video, Internet (IP) or corporate content over broadcast or multicast networks - typically satellite infrastructure. It takes the content, combines it, and delivers it over whatever protocol is being used, often DVB in the satellite world.

Our other product, the Edge Media Router, receives that content at the other end of the broadcast pipe and then disperses it to service providers' locations or within an enterprise. You can view one as a router/transmitter and the other a router/receiver.
Our third product is Zband, which is a software content delivery and distribution solution. It enables service providers to gather their rich content; manage and schedule its delivery; manage the bandwidth and get it to users' PCs or TVs. They work together or independently with other vendors' solutions.

Our products enable the turning on of new revenue-generating services quickly within our customers' networks, which we feel is very important. In the US, we have moved rapidly from an economic environment where capital was free - and service providers could compete with each other on assets instead of services - to one where capital is almost completely unavailable. So, service providers have to compete on delivery of services.

Who are your target customers and how are they using your products?

Our target customers are almost entirely service providers in the satellite, cable and telco carrier spaces. We are strongest in satellite because that is where we started. The applications that our technology enables falls into three categories.

The first is digital entertainment services; our most significant customer there is EchoStar Communications - the second largest satellite DTH television operator in the US. We help them broadcast over 500 channels of digital video, high-definition video and CD audio to almost seven million customers in the US. We lower the cost of their particular uplink infrastructure because our Source Media Router allows them to hook together their products from other vendors, which drives down the cost of their infrastructure.

The second is managed enterprise services. Here, we sell our technology to service providers who then manage data and video delivery services for their customers. Customers here include Convergent Media Systems, which uses the technology to provide corporate communications, training, e-learning and video distribution to remote sites.

The third segment is content delivery over satellite. These customers are using our products to build and to augment Internet backbones. So the applications are broadcast, video content, file and data distribution and then enterprise or even global network connectivity.

One of our customers here is Netherlands-based New Sky Satellite, which uses our Source Media Routers to deliver rich Internet content to ISPs throughout Latin America, the Middle East and Asia via New Sky's global satellite network. Another customer is Europe Online, which uses our routers to deliver home entertainment services to users' PCs via satellite. We also work with Spain's Telefónica and Gilat.

Which is your biggest growth area?

All of these areas are growing very rapidly for us despite the downturn. Last year in the US, we experienced the steepest decline in communications technology spending in history. During this time, SkyStream grew its business by 30 per cent.

In 2001, content delivery over satellite - helping build Internet backbones - was probably the fasted growing segment for us. Digital entertainment services was another high-growth sector. This year, it looks like managed enterprise services is going to grow very rapidly. The technology has now come down in price to a level where it is feasible for enterprises to sign up service providers that can deliver them rich content right to their many locations.

Which companies are your main competitors?

There is no other company in the world that has both Source Media and Edge Media technology together with a Zband-type software solution. Nevertheless, we do have a number of competitors in each of these areas. One is Thales, part of the Thomson Group, and another is Harmonic in the US. There are also a host of fairly undercapitalised private companies around the world.

How has SkyStream coped with the difficult economic situation of late?

In late 2000, as technology spending began to level and stock markets were declining rapidly, we raised €50.5m in new financing. Investors included AOL Time Warner, Shaw Communications and a number of large cross-over funds like Amerindo and Integral Capital. We have also been managing our costs very tightly since then; plus, our revenues have been growing.

When will you break even?

Our aim is to reach profitability late this year but no later than 2003; and we hope to do that without having to raise any additional financing. In Silicon Valley just over a year ago, there were close to 100 companies about our size. Today there are about ten. That is a significant fall-out due to the economic downturn in communications year ahead.

What does a company need to survive difficult times?

You have to have differentiated technology or services. If you do not stick out head-and-shoulders above your competitors, or if you are not at least in the top two, it is going to be difficult to survive this environment. The second thing to have is very prudent cost management. That is just critical.

The years between 1997 and the early part of 2000 bred some nasty habits - primarily driven by the availability of free capital. Any company could raise mountains of cash virtually for free and at a higher valuation than they did the previous year; so there was very little incentive for many companies to spend that cash wisely or to compete on differentiated services.

Furthermore, companies have to be very agile and attack high-growth revenue opportunities very quickly and move from one to the other. We will not enter a market that we can't be number one or two in very quickly.

How do you see the markets in Europe panning out?

I think that all of the market segments I mentioned before are going to be very exciting for us. In the content delivery over satellite, we see a lot of opportunities there for moving Internet or corporate content to the edge of the network. With regard to managed enterprise services, in a few months we'll have an announcement concerning a very well known European customer who will be deploying our technology in one of the most exciting enterprise applications imaginable.

Is there anything about Europe that makes it stand out from the US?

Right now, I think that it is a blessing that Europe has been slightly behind the US in broadband deployment - the US has done too many things wrong. You have heard the term 'build it and they will come'; well, arguably, we laid the most elaborate fibre infrastructure in the world and not enough people are coming. So that is a mistake that hopefully the Europeans will be able to avoid.

Europe is making tremendous strides in the satellite Internet content delivery and enterprise content markets. We have taken Europe very seriously from day one - half of SkyStream's revenues come from Europe or Asia. We are a multinational company and we think this will help us build a strong company in the years ahead.

In summary, as a service provider, why do I need to speak to SkyStream Networks?

There are two main reasons: deploying our technology enables service providers to quickly turn on new revenue generating services over their existing infrastructure and enables them to lower their on-going infrastructure costs.

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