A Stream Runs Through It

The Canadian TV landscape continues to undergo upheaval and change. On one hand, the telcos are reporting growth in their IPTV subscriptions while on the other, the cablecos are still losing customers despite having invested in IP technology. Meanwhile, new versions of TV delivery in the shape of Internet-based BDUs and Streaming Video On-Demand (SVOD) services are proliferating and becoming the preferred video source for many.

So, why are consumers favouring telcos and OTT over cablecos and traditional delivery? First, the telcos’ unanimous choice of IPTV platforms has given them a multi-year head-start in being able to offer all that technology’s programming and viewing features and advantages. Second, they also offer their pay-TV service via OTT and third-party devices such as Android and Apple TV media boxes as well as Roku and even Xbox. This flexibility gives consumers the choice to watch what, when and where they want, as well using devices they already own. Nevertheless, the cablecos now have (or will shortly launch) their own IP-based TV services with potential for OTT delivery, potentially leveling the technology playing field once again.

These developments have to be set against the backdrop of the “cord cutting” reality. Instead of only subscribing to pay-TV, consumers now have the option of cheaper, easy-to-activate, easy-to-cancel, digitally delivered entertainment on demand. In fact, service providers of all kinds now have to deal with a market where the consumer, with a click of a button, decides whether to be their customer.

The overall result is further segmentation of the pay-TV market. Where once there were just three siloed segments – Cableco, Telco and Satellite – there are now several more. The new segments include: a traditional pay-TV subscription supplemented perhaps with one or more streaming services; Internet access plus SVOD – so-called Over the Top (OTT) TV; and Internet-based pay-TV with or without SVOD. It is no exaggeration to declare that while sports viewing is thriving along with live news, the live TV model for entertainment is becoming less relevant as it is displaced by SVOD and AVOD (ad-supported VOD services such as YouTube) and that the bifurcation between live (sports and news) and on-demand (entertainment) is gathering momentum.

And while the telcos and cablecos have deployed robust fibre networks directly or as close as possible to their customers’ premises, the very ubiquity of fibre also encourages subscribers to “cut the cord” and try one or more of the new alternatives mentioned above. In fact, these new services are now so entrenched, that by late-2019, according to our estimates, at least one SVOD service was a feature in at least 75% of Canadian pay-TV subscribers’ home entertainment portfolios. For millennials, many of whom do not subscribe to pay-TV, OTT via a broadband connection is the preferred platform for video content consumption; service providers who offer this option are positioning to fill that need.

One particular response is their promotion of Crave, which is available to anyone with Internet access and comes with the optional availability of HBO and Showtime. Additionally, most service providers promote Netflix with some even providing a dedicated channel for access to that service. But, SVOD competition has increased with Amazon’s Prime Video availability and the late-2019 arrival of Apple TV+ and Disney+ along with HBO Max in 2020 promises to disrupt the market further. But, while Crave and Netflix remain the most popular SVOD services (see Exhibit 6) and many households subscribe to Prime also, the arrival of the newcomers threatens the possibility of subscriber fatigue.

So, what is a subscriber or a service provider to do? We believe aggregation is the key. Consumers like convenience; if they can get everything they want at a “one stop shop” they might even pay a little for the privilege of avoiding multiple sign-on and multiple billing. This means the ball is in the service providers’ court because ultimately, as no lesser person than Bill Gates once pronounced… “the TV business will become almost entirely a data business…”. Consumers want easy single-source access to any content, whether via pay-TV or the Internet. This means not having to change TV inputs or deal with multiple STBs and remote controls. The home-screens on smartphones and tablets with their easy access to programs via apps have become familiar to millions of users who now want that function on their TVs.