GeoEye Modifies Agreement with NGA

Last week, GeoEye announced it had "finalized a Service Level Agreement (SLA) modification to the company's existing NextView contract with the National Geospatial-Intelligence Agency (NGA). The value of the SLA is $12.5 million per month for a period of one year." Directions Magazine contacted GeoEye to get further clarification on why the modification to the contract was necessary, the changes to its business model, its impact to its existing distributors and partners.

Directions Magazine (DM): In the press release, Erol Morey, GeoEye's Next View program director,"This service-oriented imagery acquisition model optimizes imagery collection opportunities for our constellation of satellites." Can you have someone explain what is meant by a "service-oriented imagery acquisition model"?

GeoEye: The service-oriented imagery acquisition model is considerably different than the conventional business model. In the conventional model, a customer (like the NGA) identifies a particular area on the surface of the Earth and asks GeoEye to image it, given certain parameters: No more than 20 percent of the delivered imagery can contain clouds, the imagery must be accurate to within 15-meters of its true location on the earth's surface, etc. GeoEye would image this area, perhaps many, many times until the order parameters are satisfied. GeoEye delivers the imagery to the customer along with an invoice for payment. The invoice value is simply the square kilometer of area times the negotiated price per square kilometer.

In the service-oriented approach, the customer (like the NGA) asks that GeoEye image large areas of the Earth's surface. GeoEye commits a certain portion of our constellation's capacity to address this requirement and commits to continued imaging operations over this area maintaining image currency (freshness) to a specified level. Example: GeoEye will conduct imaging operations over a particular area such that all imagery over the area will be no older than eight months. The invoice at the end of the month is based upon our performance.

DM: The press release states, "This agreement gives NGA a predictable supply of the world's highest resolution commercial satellite imagery." Was there a change to the contract that necessitated a modification such that there was not a predictable supply of imagery for the NGA? I assumed the contract had already stipulated a certain supply stream of imagery to the NGA. Please clarify.

GeoEye: The NGA committed to purchasing a quantity of imagery from GeoEye over an 18-month period of performance after GeoEye-1 achieved full operational capability. The month-to-month revenue that GeoEye would have received under the previous contract structure is entirely dependent upon NGA placing individual image orders. If NGA elected not to place any orders in a given month, we would not receive any revenue from NGA for that month. GeoEye prefers a balanced best-value approach, like the service model, where we continually deliver value to our customers.

DM: The press release states, "This contract, together with GeoEye's recent modifications to its business model for international commercial affiliates, ..." What are the modifications to its business model and how will it affect its partners, affiliates and resellers?

GeoEye: The critical modification to our international business model is that fact that GeoEye retains the right to directly sell all imagery acquired by the GeoEye-1 satellite. This GeoEye-1 model is considerably different from the IKONOS business model where individual Regional Affiliates retained all rights to IKONOS data downloaded to their ground station.