Panamsat Corporation Business Information, Profile, and History

Company Perspectives:

PanAmSat Corporation is a leading provider of global video and data broadcasting services via satellite. The company builds, owns, and operates networks that deliver entertainment and information to cable television systems, TV broadcast affiliates, direct-to-home TV operators, Internet service providers, and telecommunications companies and corporations. With 21 spacecraft in orbit today, PanAmSat has the world's largest commercial geostationary satellite network.

History of Pan Am Sat Corporation

PanAmSat Corporation is a leading provider of satellite operations, serving markets in all parts of the globe. The company keeps aloft a fleet of over 20 satellites, which allow hundreds of customers to broadcast television and video programming to millions of households worldwide. PanAmSat serves prominent news organizations such as the BBC, the Associated Press, Bloomberg, and many more, and carries cable programming for Disney, AOL Time-Warner, Viacom, China Central Television, and many others. The company's satellites carry over 500 channels of so-called direct to home television programming. PanAmSat's satellites also provide telecommunications service to communications companies on five continents, and provides streaming video capacity over the Internet to computer networks in countries such as Australia, Japan, Korea, Taiwan, Peru, Chile, and Argentina. The company has eleven offices worldwide, and seven technical ground facilities. The company was founded by a maverick television executive, Reynold Anselmo, who was the first to challenge the existing satellite monopoly, Intelsat. PanAmSat is now 80 percent owned by Hughes Electronics, a subsidiary of General Motors.

1980s: Abandoning Television for Satellites

PanAmSat was founded in 1984 by Reynold ("Rene") Anselmo, who had made his career bringing Spanish-language television programming to the United States. He was born in 1926 in Bedford, Massachusetts, a community outside Boston. His father was born in Italy but raised in Chile and Argentina, and eventually became postmaster of Quincy, Massachusetts. Anselmo was apparently restless and headstrong as a youth. When he was 16 in 1942, his high school principal offered to lie about Anselmo's age in order to get him into the military, as school clearly did not suit him. Anselmo fought in the South Pacific, and after leaving military service attended the University of Chicago. Upon graduating in 1951, he went to Mexico, where he began producing and directing both theater and television. His various jobs included writing for the Voice of America, dubbing "I Love Lucy" into Spanish, and producing a Spanish-language version of the U.S. Broadway comedy The Boy Friend. Anselmo made friends with Emilio Azcarraga Milmo, whose father was the head of Mexico's largest media and television company, Televisa. By 1954, Anselmo was working for Televisa, marketing its programs to other countries in Latin America. In 1963, he moved to New York to become president of Spanish International Network, known as SIN. SIN built up a network of Spanish-language TV stations, which showed programming predominantly from Televisa. By the early 1980s, SIN had grown to be a major presence in the Spanish-language market in the United States, with the lion's share of advertising dollars. Anselmo owned 24 percent of SIN's holding company, and had large stakes in several of its stations. But the company had problems. Tension between Anselmo and his business partners led to a lawsuit in the mid-1970s, which finally came to a head in the early 1980s. The Federal Communications Commission (FCC) investigated the company after competitors alleged that SIN was controlled by Televisa. Foreign ownership in a domestic network was limited by law to only 20 percent, and SIN appeared to violate this. Anselmo wanted to keep going with SIN despite the legal tangles. But his partners overruled him, and the company was sold for $600 million in 1986 to Hallmark Cards Inc. Though he had been against the sale, Anselmo personally gained $100 million for his share of the company.

Even before the final breakup of his company, Anselmo had founded PanAmSat. In 1984 he applied to the FCC for permission to launch a private satellite, to be used to carry television and video into parts of South America. This was an extraordinary thing to try to do, since satellite transmissions had been provided since 1964 by only one company, the International Telecommunications Satellite Organization, or Intelsat. Intelsat was jointly owned by a consortium of over 100 governments. Intelsat built and operated the satellites, while marketing was done by individual member-owners. The United States had a 25 percent share in the consortium, which was headquartered in Washington, D.C. Federal laws favored Intelsat, requiring, for instance, that long distance phone companies to send a percentage of their signals over the satellite network. The company made handsome profits on huge markups, and it had successfully battled for years to keep potential competitors away. But Anselmo was determined to fight his way into the satellite market. While Intelsat was armed with top lobbyists, Anselmo battled with his own wits, sending members of Congress and others antic letters featuring his dog Spot. Then a 1985 FCC ruling authorized private satellites, and Anselmo was on his way.

Building a Solid Customer Base

Anselmo was sole owner of PanAmSat, and he used his own fortune to bring the satellite venture off. He bought a cut-rate satellite, paying $45 million to RCA Astro Space Electronics for one that another customer had cancelled. Full price would have been about $80 million. He had some prospective customers, but none who would commit. It took until 1987 for the FCC to approve the satellite's launch, and Anselmo scheduled the satellite to lift off in June 1988. Again he had to take the cheapest route. The United States had shut down its satellite launch program after the space shuttle Challenger blew up in January 1986. Anselmo went to the European launching consortium, Arianespace, instead. But Arianespace's reputation was not as solid as it might have been--four rockets since 1981 had failed after liftoff. The June 1988 launch was billed as the maiden voyage of a new series of rockets. Ordinarily, the test flight would not have had any paying customers. But PanAmSat signed up. And Anselmo gambled on the success of the flight, insuring the satellite for only half its replacement value. PanAmSat still had to negotiate with individual governments who were members of the Intelsat consortium for something called "landing rights," guaranteeing that his satellite would not interfere with Intelsat signals. Anselmo had won agreements with West Germany and about six other countries by the time of the launch.

Luckily for Anselmo, the launch went perfectly, and PAS-1, as it was called, was up and functional. PanAmSat soon signed up cable broadcasters such as CNN, ESPN, and a sports cable network, as well as the news corporation Reuters, and many customers in Latin America. The satellite went up just as the communist regimes in Eastern Europe were breaking down, and news organizations hungry for reports from Prague and Berlin were happy to use PanAmSat's services. Gross revenues for 1989 were already $17 million, and it looked like the venture would soon pay for itself. By 1991, the PAS-1 was at about full capacity. The Persian Gulf War also brought a burst of news material, and a corresponding rise in satellite use, for PanAmSat as well as Intelsat. Besides news organizations, PanAmSat also signed up universities, such as the University of Florida; telecommunications customers like Chile's Compania de Telefonos; and private companies. With business going so well, the company began raising money to launch more satellites. In August 1991, PanAmSat announced it had made a deal with Hughes Communications Inc. to buy three of its satellites. These would be launched over the next several years and placed in orbit over the Atlantic, the Pacific, and the Indian Ocean. The company promised Hughes $300 million for building the satellites.

By 1993, PanAmSat was bringing in a profit of close to $17 million on sales of $50 million. Still, it did not have anything near the capital it needed to pay Hughes. Rene Anselmo resorted to his old friend Emilio Azcarraga, who now headed Televisa. The two men had not spoken since the mid-1980s, when Azcarraga demanded Anselmo go ahead with the sale of the embattled SIN. But apparently the bad blood was behind them. Azcarraga forked over $200 million, giving his Grupo Televisa a 50 percent stake in PanAmSat. Then through a junk bond offering, PanAmSat raised another $420 million, enough and then some to pay for the building and launching of the new satellites. The first of the new batch went up in July 1994, again on an Arianespace rocket.

The company's next satellite, PAS-3, failed at launching. PanAmSat had had plans to make a public stock offering, but the bad news abut PAS-3 made that seem not such a good idea. But the company went on and launched its next satellite, PAS-4, on schedule. This orbited over the Indian Ocean and primarily served customers in South Asia and Africa. PanAmSat made plans for more satellites, particularly ones for serving television audiences in Latin America.

Rene Anselmo died in September 1995, at the age of 69. The company was left in the hands of Fred Landman, Anselmo's son-in-law. Landman continued as president even after the company made a major change by merging with the satellite unit of Hughes Electronics, Hughes Communications, in 1996. Hughes paid $3 billion for a little over 70 percent of PanAmSat. Televisa reduced its stake in the new company to under ten percent. The combination made a much bigger company, which was publicly held, and still called PanAmSat Corp. Hughes ran a fleet of ten satellites, which served U.S. markets. PanAmSat at the time of the merger had four satellites up, and seven more scheduled for launching over the next two years. Both Hughes and PanAmSat had focused primarily on television markets, instead of telephony or other business communications. After the merger, the new company continued this trend. PAS-6 went up in August 1997, completely dedicated to digital direct-to-

A Bigger Network in the Late 1990s and After

One of PanAmSat's satellites failed in orbit in mid-1998, and months later another one was wrecked when the rocket launching it exploded after lift-off. These accidents depressed PanAmSat's stock price, and revenue stayed flat that year. Yet the company announced that it would add nine more satellites over the next three years. By 1999, PanAmSat had successfully launched three of the nine. In April of that year, President and CEO Fred Landman was replaced by the company's former chief operating officer, Douglas Kahn. Kahn had founded his own Internet consulting firm and had also worked in the software industry. He believed the logical direction for PanAmSat was in relaying voice, video, and data for new Internet companies. Though this still represented only a small fraction of PanAmSat's business, it was a rapidly growing category. In 2000 the company set up an Internet access service called Net-36, which was to provide video, such as movies on demand, over the Internet. PanAmSat also kept up with its proposed satellite launch schedule. In 2000, it sent up four new satellites in less than five months. It replaced the PAS-1, the satellite Rene Anselmo had bought for half price in the late 1980s, with a more powerful craft, the PAS-1R. The company's fleet ran to 21 satellites, with two more launches expected for 2001.

However, PanAmSat's revenue did not increase as the company had expected. By the first quarter of 2001 it was clear that the Internet market was not nearly as strong as it had been. The company cut its spending on Net-36, and sharply reined in its revenue expectations for that project. Industry-wide, prices for leasing of satellite time seemed to be falling too. As total revenue fell, PanAmSat struggled to control its costs. In July 2001, the company announced that it was trimming its staff, and consolidating its four Connecticut headquarters into one office in Wilton, Connecticut. Weeks after this news, president and CEO Kahn resigned. He was replaced by a board member, Joseph Wright, Jr., who had been a director of the Federal Office of Management and Budget. Despite its economic woes, the company stuck to its plan to increase its fleet.

Principal Competitors: Intelsat, Ltd.; Loral Space and Communications, Ltd.; Lockheed Martin Corp.

Chronology

• Key Dates:
• 1984: Rene Anselmo founds the company.
• 1988: The company's first satellite is launched, the PAS-1.
• 1995: Anselmo dies.
• 1996: The company merges with Hughes Electronics and goes public.