OTT services not a viable broadcasting substitute before 2017: Report

Traditional broadcasters have a few years before they have to worry about serious competition from over-the-top service providers like Netflix Inc., according to new report from RBC Capital Markets. In an April 15 research note, RBC predicted that over-the-top services wouldn’t become a viable substitute for Canada’s current television system before 2017. Around that time, the report said, over-the-top purchasing power for premium content could compete with incumbent broadcasters; Internet-enabled television could be available in more than half of Canada’s homes; and more than 70 per cent of those households would have broadband speeds higher than 5 Mbps. “OTT services are the future and we expect services like Netflix to continue to make inroads into the Canadian media landscape,” the report said. “The consensus view is that OTT services are for the moment complementary and are not expected to have a material impact on the Canadian television industry in the near-term and we would not disagree.” As the buying power of over-the-top services grows, RBC said it expects programming costs to rise, affecting the incumbent broadcasters’ operating margins. “Following the OTT inflection period , we believe OTT services become a viable substitute for cable and satellite television potentially impacting the revenue growth of incumbent distributors and broadcasters,” the report said. “The extent to which a ‘TV Everywhere’ strategy deployed by incumbent distributors and broadcasters is successful will be a major swing factor in determining the rate of substitution.” The report also predicts that the growth of over-the-top services could lead to more industry consolidation. “As OTT services potentially begin to impact the operating margins and revenue growth of incumbent distributors and broadcasters over the medium and longer-terms, we see further major industry consolidation at the distribution level (such as BCE and Telus and/or Rogers and Shaw ) as a means to maintain sufficient buying power and profitability,” it says. But RBC noted that Netflix and similar services “face an up-hill battle in securing premium programming” due to the concentration of broadcasters that maintain the bulk of the buying power. A similar report in January from Scotia Capital Inc., titled “Going over the top: Implications for the Canadian broadcasting system,” identified three central barriers to the consumption of over-the-top services in Canada: “securing sufficient content rights”; “overcoming bandwidth caps”; and an “evolving regulatory framework.” The RBC report said usage-based billing and net neutrality issues would play “a major role” in determining the success of over-the-top services because exceeding bandwidth caps increases the “real” cost of services like Netflix. RBC also warned that wider adoption of unregulated services at the expense of regulated ones would hurt Canadian content. The reports come as several broadcasters and broadcasting distributors are now calling on the CRTC to “level the playing field” between unregulated over-the-top services and regulated broadcasters. A working group of industry insiders has called on the CRTC to open a public consultation on the role of over-the-top distributors like Netflix and Apple TV in the Canadian broadcasting system. news@thewirereport.ca

OTT services not a viable broadcasting substitute before 2017: Report

Broadcast | April 29, 2011

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