TV providers to fight for smaller share of customers as housing starts fall

Lower housing starts this year will lead to fewer television subscriptions and could trigger pricing wars among TV providers, industry experts said. In a data released last week, the Canada Mortgage and Housing Corporation projected that Canadian developers will break ground on about 182,900 new housing units in 2013, a 14.9 per cent drop from 214,827 units last year. CMHC projected housing starts could “re-gain momentum” in late 2013 or sometime in 2014, forecasting between 166,500 and 211,300 housing starts next year. “The only way the total number of pay TV homes grows is if the total number of homes grows,” Alan Breznick, a media, telecom and technology analyst at Heavy Reading, said in a telephone interview. “This definitely has a big impact on paid TV subscriptions.” He said new television subscriptions rise and fall with housing starts as broadcast distributors compete for customers moving into their first home. The slowdown in new housing projects, he said, means television providers will be under more pressure to take new subscribers from competing companies or go after customers currently without any television service. As housing starts slow, Canadian TV providers will fight for a “larger slice of the same-sized pie” instead of a share of an ever-expanding pie, he said. Breznick said this could result in lower TV service prices as providers fight to steal each others’ customers and to retain their own. Data released by the CRTC this year showed that total TV subscriber growth for cable, IPTV, and satellite TV services in Canada slowed to one per cent in the 2011-2012 broadcast year, reaching a total of 11.5 million subscribers. Duncan Stewart, director of technology, media and telecom at Deloitte Canada, said in an interview at the time that, due to the downward trend in TV subscriber growth, he forecasts negative growth, or an overall industry subscriber loss, in 2013. Mario Mota, a partner at media consulting firm Boon Dog Professional Services, said the slowing housing starts come at a bad time for cable TV providers that face competition from telcos Telus Corp., BCE Inc., and other players rolling out Internet protocol TV (IPTV) products. All TV providers also face a growing “cord cutting” phenomenon, where consumers cancel their TV services for online, over-the-top services like that of Netflix Inc. and other websites, he said. Mota pointed to a report Boon Dog released in June that said Canada’s publicly traded TV providers showed “concrete signs” of cord-cutting during the past two quarters. Their combined subscriber base fell for the first time since cable TV became a feature in most Canadian homes, the report said. He said those declines, which totalled about 13,500 subscriptions in the first two quarters of this year, could drop further if the housing market does not grow. “Where’s the growth coming from? It’s coming from new housing,” he said. Mota agreed that slowing subscription additions could result in a “bundle battle” where providers offer different TV subscription deals for bundled customers using Internet, home phone or mobile services. This may result in cheaper, leaner TV packages to keep “low-cost” subscribers in the paid television system, though not necessarily lower prices across the board, he said. Canada's publicly traded TV service companies face “enormous pressure” to maintain revenue growth each quarter, he said, even when the economy doesn’t support it. The risk is pushing customers away with price increases, Mota said. “In an increasingly competitive market, you risk shooting yourself in the foot and having customers leave the system altogether and going to those unregulated options like DVDs and Netflix and other over-the-top services, and BitTorrent,” he said. “That's certainly not helping your revenue, so this is a delicate balance.” Breznizk said TV providers, in response to a tougher market, may also shift the focus of their marketing from television to Internet services and try to convince Internet customers to sign up for television services as part of a discounted bundle. “Video's increasingly becoming a lead product for telcos, but broadband is increasingly becoming a lead product for the cable operators,” he said. “I think that's where the biggest battles will take place as they focus on bundled services.” Jeff Kagan, an independent technology analyst in Atlanta, Ga., said American TV providers' sales have been low or negative in recent years as the U.S. housing market has struggled to regain speed following its collapse in 2008. He said U.S. television subscription prices have roughly doubled every decade over the past 30 years, and that, while the rise may have cooled off a little in recent years, he does not expect prices to start falling anytime soon. Kagan said the American television industry is facing “enormous pressure,” from over-the-top alternatives and competing television providers, to fight for subscribers moving into new homes. That pressure will ease, to some extent, if the housing market rebounds, he said, or if there is consolidation in the industry and adaptation to new technology. “Cable is actually still strong, but it's not growing the way it was because there is so much competition ,” he said. “It's going to be an expanding pie again once we get through re-inventing this industry.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

TV providers to fight for smaller share of customers as housing starts fall

Broadcast | July 2, 2013

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TV providers to fight for smaller share of customers as housing starts fall

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