In the U.S., the rapid transition to high-definition production and broadcasting has boosted demand for Snell & Wilcox’s Kahuna switcher, which is designed to help broadcasters handle a number of different formats as they move to HD. But in a recent interview, the company’s vice president of corporate development, Joe Zaller, also talked about their work for multichannel players and the booming international markets in the run-up to IBC in Amsterdam. An edited transcript follows:
Q: Snell & Wilcox is obviously well known on the broadcast station side of the business. Tell our readers a little bit about what you’re doing in the multichannel space?
A: On the multichannel side, we work with Dish and DirecTV and do a little work with Comcast. It is nothing like what we sell into the broadcast market worldwide, but it is a very strong business.
For example, in the past couple of month, DirecTV has ordered a huge amount of our infrastructure gear.
Another customer is Dish Network. They buy a lot of standard converters from us to bring back international and ethnic content into the U.S. We don’t have 100% of that market, but we probably have 90 plus.
Similarly, we’re very active in terms of high-def at the Olympics. NBC Universal is using something like 50 of our converters to bring back all that content. So every standard-def feed, every high-def feed coming back to the U.S. is coming through one of our converters. If you watching the Olympics, you are watching Snell & Wilcox technology in action.
Another aspect of our work on the multichannel side of the business is this big arms race for the biggest HD offering between DirecTV and Dish. They’ve mandated all the cable programmers to deliver as much HD content to them as possible but a certain amount of that content is not in HD, it is up-converted. And most of it is being up-converted using our converters.
Q: The German post-production house TV Werk recently announced that they were buying Snell & Wilcox's Kahuna SD/HD multiformat production switcher with IMPAKT 3-D DVE so they could more efficiently handle HD product. As we go into IBC in September, how fast are the Europeans moving to HD and what sort of demand to you see for equipment to help with that transition?
A: We are seeing tremendous dynamist in international markets for gear. But in looking at the demand, you have to divorce production from transmission. Even though every country may not be broadcasting in HD in the short- or mid-term, everyone is producing in HD or buying equipment that is capable of being upgraded easily to HD.
Why? The cost differential is not that great so it’s hard not to buy high-def capable equipment. Second archives will have more value in the long term if they are producing in HD.
Since the marginal cost of moving to HD is not that great, it makes sense. Even if the channels aren’t going to HD this year, they know their will be a dearth of HD content when they do launch. The U.S. and Japanese markets are saying they want true HD content so if you want to exchange that content or co-produce with those markets, you have to be producing in HD.
So we are seeing really strong demand for those products. Europe is going HD now. Our company is based in the U.K. and that is really helping us because we are actually a much stronger player in terms of the volume of stuff we sell in Europe compared to some of the other companies in our space.
The U.S. obviously is going through this big HD build-out, which we are benefiting from. We’ve done deal with a couple of big station groups for switchers. But in Europe and Asia, is where we’ve won most of our big infrastructure deals. People are upgrading production and news and sports facilities, which create demand for infrastructure and switchers.
And, of course on the conversion side, we are selling a lot of standards converters for the international programming exchange. Almost anything coming from Europe will have come through one of our converters. Everything from the Olympics will have gone through one of our converters.
Q: How do you see the movement by U.S. stations to HD over the next year?
A: There is a financial analyst in Canada at the Bank of Montreal who puts out a weekly infrastructure watch. They cover three Canadian tech companies so they are looking at it from that point of view but according to their numbers, the month of July was the strongest yet for conversations to HD.
You can see that NBC stations want to be on the air with high def by the time Olympics get here and you can see the fall sweeps and the fall season coming up. People want to be on the air with HD for that.
But having said that, you can see GM and Ford and all these guys cutting back on advertising. That will definitely have an impact and we’ve heard that from customers.
From our point of view, though we have deals with that we’ve announced with Raycom Media and with Sinclair Broadcast Group and they are progressing with their plans go to HD.
As part of the economic stimulus package, corporations can take accelerated depreciation on capital expenditure on equipment they buy in 2008 and put into operation in 2008.
So it is possible that companies that were planning to buy a piece of gear in January of 2009 might move that to the end of 2008 so they could take advantage of that accelerated depreciation.
Overall, the market for the gear for infrastructure digitalization and conversion to HD has been pretty robust. Interestingly, a lot of the growth is coming from outside the U.S., which is where we are very strong and where we are seeing a lot of infrastructure work.