Cord-cutting predicted to register statistically this year, take $1.7B from earnings by 2017

Cord-cutting is expected take a $1.7-billion bite from the Canadian broadcasting industry's annual revenues by 2017, a new report by RBC Capital Markets says. “We estimate that cord cutting and cord shaving combined could impact annual television and EBITDA by $1.7 billion and $1.1 billion, respectively, by representing 13 and 27 per cent of potential distribution revenue and EBITDA, respectively,” the report said. The report’s authors, Drew McReynolds, Toze Francisco and Haran Posner, wrote that the number is a relatively meek hit to the industry and “should not have an overly disruptive impact” on distributors’ revenues through 2017 assuming they have strong Internet pricing and competitive television and Internet offerings. “We estimate distributors could recover over 70 per cent, or $800 million, of the $1.1 billion in forgone EBITDA by 2017E resulting in a net EBITDA impact for the industry of approximately $300 million,” the report, issued Dec. 13, said. An April RBC report entitled “Pricing in a Potential OTT Inflection Period” identified a possible 2017-2019 over-the-top (OTT) “inflection period” in which OTT services could become a substitute for television in Canada. RBC added that prior to this period, “cord shaving” may occur as a result of regulatory pressure on distributors from the CRTC's vertical integration framework, which introduced new rules for major companies that own both broadcast distribution and broadcast assets. In its report this week, RBC noted that distributors will have to demonstrate to the regulator that steps are being taken to respond to perceived consumer demands for more choice in their television packages. Other factors affecting cord-cutting are a need to counter increased video piracy as broadband capacity rises, and intensifying competition for TV customers between cablecos and telcos, which could accelerate the industry’s migration to more open and flexible all-IP home data networks, RBC said. The analysts added that rising competition from over-the-top platforms like Apple TV and Netflix is expected to put upwards pressure on programming costs and television prices for consumers, a trend that could lead to higher prices and strain household video entertainment budgets. Declining technology costs for distributors to deliver greater packaging flexibility could also be a factor, the report said. The report said online video revenue in Canada is expected to grow from $150 million in 2010 to $2.3 billion by 2017. Kris Faibish, executive director of strategy and business development for the CBC/Radio-Canada's English services, told The Canadian Press this week that there is a feeling that a “tipping point” has occurred in cord cutting but that point is “probably two to three years out—plus.” Brahm Eiley, an analyst with the Convergence Consulting Group, who this year predicted that just one per cent of Canada's 11.7 million TV subscribers would cut the cord by the end of the year, told CP that 2011 is probably the first year that cord-cutting will register statistically. “The fact is it took the U.S. four years to get to two per cent and the pace will be slow here as well,” Eiley said. Pary Bell, vice president and general manager of the digital media division of Rogers Communications Inc., said in an interview with CP that online video viewing on websites such as Citytv.com has increased between 100 and 250 per cent from last year. “Any progressive business person looking at the future is going to keep an eye on things,” Bell told CP. “The numbers are fairly small in Canada but everyone has to pay attention to where the audiences are going. We're seeing great numbers—on TV, online and on mobile—so we're really pleased.” news@thewirereport.ca

Cord-cutting predicted to register statistically this year, take $1.7B from earnings by 2017

Broadcast | December 15, 2011

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Cord-cutting predicted to register statistically this year, take $1.7B from earnings by 2017

Broadcast | December 15, 2011

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