Canada's Effort to Stem Cord-Cutting Has Been an Epic Fail
As more and more consumers dump cable, what's happening north of the border provides an object lesson for Hollywood.
Here's a cautionary tale for Hollywood: The same cord-cutting forces driving U.S. pay-TV viewers to Netflix and other digital insurgents triggered Canada's failed attempt at a great cable unbundling in 2017.
Insiders say Canadian subscribers haven't warmed to "skinny" TV bundles because Canadian cable and telco giants — who, like their American counterparts, are feeling the competitive heat from cheaper streaming TV services — have been protecting their bottom line, rather than offering flexible, affordable alternatives to expensive, cable packages.
If Hollywood is paying attention, the lesson for the U.S. market is that in order for cable unbundling to be successful it has to meet consumer demand.
The CRTC, Canada's TV watchdog, made a big show of trying to discourage cord-cutting in 2016 when it compelled cable and telco giants to offer a limited bundle of key channels for $25 a month, mainly aimed at young consumers. The agency then followed up this year by ushering in individual pick-and-pay channels. But mandating slim basic packages and a-la-carte shopping for additional channels has done little to stop the shift of Canadian consumers from cable to over-the-top digital platforms.
The reality may be that the cash cow of traditional pay TV has been too lucrative for Canadian cable giants like Rogers, Shaw and Videotron to give up.
Critics say vertically integrated phone, internet and TV operators have — by design — made the CRTC-mandated starter cable TV packages unattractive to most Canadians. "They really wanted to give this idea of skinny basic [cable] a stillbirth," says Dwayne Winseck, a professor at Carleton University’s School of Journalism and Communication.
Indeed, local TV providers loaded their $25 entry-level basic TV package with additional fees, including hardware and internet charges, and priced additional pick-and-pay channels like FX, AMC and HBO at between $3 and $15 each, resulting in the skinny basic package often being more expensive than a cable subscriber's current, more generous bundle.
"The fact that cable companies were not eager to cannibalize their own base — who would? — has meant low conversion, maybe in the order of 5 to 7 percent of total households currently," says Kaan Yigit, president of Solutions Research Group.
Efforts to offer Canadians new online TV options were dealt another blow when VMedia, an upstart IPTV provider, launched a skinny basic cable TV package through a Roku streaming app, only to see telco giant Bell Canada object on grounds VMedia was infringing on its rights by retransmitting its free, over-the-air CTV networks over the internet. Bell took VMedia to court and won in November 2016, just before a la carte TV buying became an option in early 2017.
George Burger, a partner at VMedia, says the court ruling left his company hitting a brick wall. After all, he maintains, his company can't sell its skinny bundle without a VMedia internet connection, when Netflix, Sling TV and other internet players can stream content via a downloadable app.
"A foreign, over-the-top broadcaster has better access to consumers here than a licensed Canadian BDU [cable, satellite TV or IPTV provider], which is preposterous," Burger tells THR.
With powerful incumbents under little pressure from local internet upstarts, Netflix Canada, with its 5.7 million current subscribers (and growing) has been the big winner from the country's great cable unbundling attempt. (Yes, original Netflix shows like Stranger Things and The Crown are as popular with Canadians as elsewhere.)
The CRTC's own data reveals nearly one in four Canadians, or 23 percent, view TV solely on the internet as Facebook, Google, Netflix, Amazon and Apple have increasingly dominated Canadian eyeballs. And nearly a third of Canadian online households are connected to a dedicated OTT streaming device such as Apple TV, Chromecast or Roku.
That's as the menu of local streaming options like CraveTV, Sportsnet Now and Club illico remains dwarfed by American streaming services north of the border.
Critics charge Canada's telco giants, as vertically integrated kings of the cable hill, have little incentive to innovate online, as opposed to squeezing as much as they can from a declining business by jacking up the price of internet service to offset lost revenue from cord-cutting.
"Canadian TV access revenue is in decline and TV [average revenue per user] is hardly growing at all, while Canadian OTT revenue is seeing strong growth," says Brahm Eiley, president of Convergence Research.
Phone giant Bell for its part touts its Fibe — or fibre optic — basic TV service and CraveTV streaming service helping it remain competitive with local rivals Rogers, Videotron and Netflix Canada, rather than its skinny bundle or pick and pay channel offerings. "We're competitive at every level of the TV market, and don't have any concerns about any packages or pricing levels," Bell said in a statement.
Despite that assurance, experts argue American media players are doing far more than Canadian rivals to experiment with skinny bundles and streaming options.
That's because, efforts by AT&T and Time Warner to merge notwithstanding, U.S. entertainment and media content players remain for the most part separate from providers of broadband and telecommunications services, allowing more innovation and experimentation to stem cord-cutting. "Because you don't [see as much] vertical integration in the U.S. between the carriers and the content, you have two different sets of interests that are more competitive in each of the carrier and content markets — they experiment much more on their own terms," Carleton's Winseck argues.
But what if U.S. studios end lucrative licensing deals with local broadcasters and go direct to Canadian consumers with stand-alone streaming services? VMedia's Burger warns that while U.S. programmers depend on per-subscriber carriage fees from Canadian carriers to justify not going from partner to direct competitor if Canada does too little to stem the cord-cutting tide the successful Canadian TV model will be history.
"If we lose another 15 to 20 percent of the TV viewing market, you can be sure the Americans will say, 'Hold on, we're doing a revenue share here, and suddenly I'm out making x dollars and I can beat x dollars by simply going directly into your Canadian market?" Burger warns.
For now, there is one consolation for Canada’s cable giants: The pace of Canadian cord-cutting has slowed somewhat, from 120,000 cable subscribers lost in the first three quarters of 2017, against 172,000 customers lost during the same period last year.
Mario Mota, an industry consultant with Boon Dog Professional Services, who compiled that data, says the slowing pace is due mostly to Shaw Cable partnering with Comcast and its X1 technology to offer IPTV to retain cable customers against heavy competition from three western Canadian phone giants.
But while no one expects Canada's cable bundles to go away anytime soon, or even in the foreseeable future, critics say Canadian media players still do too little in the cord-cutting age to make their content available for streaming and downloading on multiple platforms and will continue to lose subscription revenues because of it.
Says Winseck: “Across a number of ventures, not just in the TV market, … it's this lack of experimentation and spur of competitive forces that's retarding our development across the board."
Nov. 20 3 p.m. ET Updated with statement from phone giant Bell about its TV offerings, including skinny bundle and pick and pay channel offerings.