Vertically integrated companies not under immediate pressure to compete with over-the-top TV

Vertically integrated communications companies like Rogers Communications Inc., BCE Inc. and Quebecor Inc. are not under pressure to modify their online content offerings as they face competition from new service Netflix, Duncan Stewart, director of research for technology, media and telecom at Deloitte Canada, said in an interview. Although Netflix appears to be ahead of the curve, the companies can take their time to monitor consumer responses to the new service before putting any new strategies into action. Overall, consumer habits are not in sync with Netflix’s online, on-demand business model, Stewart said. "About 97 per cent of Canadian video content is consumed in a linear fashion," Stewart said, citing August figures from the BBM. "You watch Jeopardy at 7:30 p.m. because that is when it’s on. In 2010, we are talking about something that is a subset—three per cent—of the population. Currently, people watch content on their TVs, and it is normal, linear programming." Stewart said current Internet speeds and bandwidth caps do not foster a culture of watching television and other content online, and that it's premature for content providers to alter their price points to compete with the new service. Bandwidth caps can cost subscribers additional fees if they exceed them. Quebecor's Videotron warns its subscribers that viewing online content counts toward monthly Internet usage. The Rogers Lite Internet service caps its monthly bandwidth plan at 15 GB, and the company’s Extreme service, for $60 per month, offers speeds of up to 15 Mbps with a download cap of 80 GB per month. Streaming a good-quality movie online tends to amount to more than 1 GB of data. "Netflix could be a really big deal over time and a very significant factor , but at this time, all of the major providers in video are doing watchful waiting," Stewart said. "It is where you don't take aggressive action yet. You are aware of it and you monitor it, but you don't do anything radical until it becomes a much more serious problem than it is today. It's wildly unlikely that Netflix will be a big enough player that the incumbents need to have a competitive response—yet." Netflix Inc. launched its popular streaming service in Canada last month with unlimited movie and television downloads on computers and other devices for $8 per month. The Canadian launch marked the service’s first availability outside of the United States. Consumers can stream movies and TV shows on their PCs, Macs, the Sony Playstation 3, the Nintendo Wii, Apple iPhone, iPad and iPod, and Blu-ray disc players from Samsung and Toshiba. It will also be available on Microsoft’s Xbox 360. Although Netflix subscribers can access a repertoire of 7,000 films and television episodes from the major Hollywood studios, the library does not include new releases. Still, the arrival of Netflix in Canada is seen as a step toward “over the top” TV in Canada—in which television programming usurps traditional broadcasting distributors and is available online on any device like television sets, laptops, tablets or wireless devices. Bell did not have any comment about the launch of Netflix. But an official said that, for now, the company does not have any new plans to change is content services online. Bell’s online content includes programming from The Movie Network, The Family Channel, Playhouse Disney, and the NFL Sunday Ticket. Rogers did not comment for this article, but a Rogers official said the company’s on-demand online service was launched about a year ago and now has nearly 250,000 users. The site has more than 3,000 hours of content from more than 60 content providers, the official added, and offers packages in tiers so that customers can choose the level of programming they want. Adam Shine, an analyst with National Bank Financial Inc. in Montreal, predicted that Netflix may not have as big an impact on the Canadian marketplace as it has in the U.S. because of its library. "I think it's important to acknowledge that the Netflix offerings in Canada are not quite as robust and deep in terms of content that is being offered stateside by Netflix," Shine said in an interview. "For now, I would argue that Netflix will serve as a complementary offering to a segment of consumers who are looking for product that is not available at their local video stories, not necessarily available on-demand, or on a fixed programming grid.” He added: "I believe it will serve a small niche in the marketplace that will prove complementary to existing television packages. I believe it will not prove to be a great near-term threat." Content licensing may be another obstacle for Netflix’s reach in Canada, added another analyst who asked to remain anonymous. Most content available in Canada has already been licensed for distribution, putting new competitors like Netflix at a disadvantage. Bell has reached an agreement to purchase CTV Inc. and Shaw Communications Corp. is in the process of acquiring the broadcasting assets of Canwest Global Communications Corp. Quebecor, which owns the TVA television network and other French-language content, is viewed as having valuable content assets targeted at the Quebec market. Other observers say broadcasters and broadcasting distributors should develop strategies to respond to Netflix sooner rather than later. "It's a new, innovative vehicle with a new model that can be disruptive to the economics of the old model for delivering video content," Lawrence Surtees, vice-president of communications and research at IDC Canada Ltd. in Toronto, said. "Its model is global and knows no bounds despite rules in different countries." Canadian content owners and providers like Bell, Rogers, Quebecor and Shaw have to decide whether to work with or against services like Netflix. "They need to think about whether their business model has opportunities or challenges to their business model," Surtees said. "They could work with Netflix, and they could all be a vehicle to bring Netflix to their subscribers and customers. There is a window of opportunity that requires some deep thought, and that time is now.” Surtees said that Netflix is not an immediate threat to established providers in Canada, and that the advent of 4G will see video content delivered on a wide-scale to mobile devices. "If Netflix succeeds, it will become a juggernaut quicker rather than later," Surtees said. news@thewirereport.ca

Vertically integrated companies not under immediate pressure to compete with over-the-top TV

Broadcast | October 18, 2010

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