In this time of tightened government budgets, and unstable global economy, it’s tough on all businesses to remain stable, but combined with dramatic defense cuts, the pressures form a perfect storm for the U.S. commercial satellite imaging industry. The overwhelming defense demand has seen both companies grow strongly over the past decade, with capacity devoted mainly to this task. That strong demand has meant less of an emphasis on growing the commercial applications of this unique spatial intelligence, and without a broad base, some time will be needed to fill revenue gaps.
The commercial satellite imagery business is uniquely constrained in that they have wide global prospects, yet government control on the quality of imagery that can be delivered. Additionally, the demand for this high-resolution imagery from other governments could match that of the U.S., but there are restrictions on which countries and entities can become customers.
Security is the overwhelming application of this technology, particularly in countries without a space program of their own. No company or industry can quite match that security demand, with the kind of deep pockets and urgency of need for quick supply of imagery. Interestingly, the demand only grows with an unstable economy, with more geopolitical hot spots now than in the recent past. If these companies operated in an unconstrained market, there would be no issue of revenue stability.
It’s amazing to think back at the troubled start of both U.S. commercial satellite imagery companies, with failed launches at the outset. The profitability and performance of the companies over the past decade has been a phenomenal achievement, and one that has fostered international competitors that are still working to catch up in terms of imaging capacity and data delivery.
The U.S. commercial satellite imagery market has been world-leading, and continues to perform well in spite of recent issues. GeoEye has assured investors that they have the capital to continue with the launch of their next satellite, and to continue operations well into 2014, even with decreased funding. The weakened revenue picture does make them a target for takeover however, that will likely play out over the next few months.
Given the security demand, it has been difficult for the companies to focus elsewhere where the revenues aren’t as promising, and where there’s a need for an ongoing effort to grow new markets. The combination of the foundation in security applications, as well as the promise of civilian applications, has always been a tough mix. The industry has always had to straddle the capacity and demand equation, and cost to produce versus the willingness to pay a premium for quality and currency of information.
With increasing amounts of geospatial information, imagery performs an increasing role of visual validation for trends coming from untrusted crowd sources. The unequivocal nature of high-resolution satellite imagery to validate the current conditions across the globe will have an increasing commercial interest for decision makers wanting to make better sense of changing conditions.
Regardless of the outcome of reduced government spending, that may lead to industry consolidation, the U.S. commercial satellite imagery market can feel good about its performance and prospects for the future. There’s no denying the value that it has provided for improved operations in global conflicts, as well as the intelligence it provides for improved commercial operations. Should government stability be returned, we can expect many years of strong market competition, leading to innovations as well as inroads in the commercial applications that will improve commerce.