Out to Conquer Canadian TV Viewers: Online Television Vs. Conventional Television

Canadians can now subscribe to 25 online television services, from Netflix to Sportsnet Now and everything in between. Brahm Eiley, president of The Convergence Research Group, explains the potential consequences of this multiplication of services on Canada’s TV production industry.

Within the next two years, there will be more Canadian households subscribed to OTT (over the top) services such as Netflix, CraveTV and Club illico than there will be households subscribed to traditional television. That is one of the predictions made by The Convergence Research Group, a firm located in Victoria, British Columbia, in its annual report titled The Battle for the North American (US/Canada) Couch Potato: OTT, TV, Online (April 2018).

For the past 12 years, the group has followed how the raging battle between regulated and unregulated video broadcasting services is evolving by compiling detailed indicators such as the number of subscribers, revenue, expenditures and audience ratings in both of these universes.

Based on an analysis of data collected from several sources (interviews, financial reports, presentations, the CRTC, Statistics Canada and the US Bureau of Census), the report makes a few predictions regarding how the battle for consumer attention will end.

Current Offer in Canada: 25 Online TV Services

In Canada, The Convergence Research Group has counted a total of 25 OTT services, i.e., paid subscription services that are independent of traditional TV access or broadband access (hence not including Telus’ Pik and Bell’s Alt).

Among the 25 services taken into consideration, 75% of them are of foreign origin with a strong majority based in the US. Four of these foreign services present live sports and their financial viability depends essentially on the acquisition of very expensive exclusivity rights. They also figure among the services that cost the most to subscribe to.

There are a few generalist services such as Netflix, CraveTV, Club Illico and ICI tou.tv, but most services cater to market niches. That’s the case of Crunchyroll, which specializes in animes and mangas, as well as Hotstar, which proposes Bollywood content and cricket matches.

25 Additional Online TV Services in Canada by 2020

The report estimates that the number of OTT services available in Canada will double (i.e., from 25 to 50) by April 2020.

This increase can be explained by the cord-cutting and cord-never phenomena, by which consumers respectively abandon and avoid traditional television services. According to an analysis model developed by The Convergence Research Group, the percentage of households that do not subscribe to a regulated TV broadcasting service will increase rapidly: from 25.9% in 2016 to 30.5% in 2018.

Brahm Eiley explains: “Unlike the past, when young adults move out, they are not signing up for TV access the way their parents did, hence the rise of cord nevers. New people coming to Canada are also less likely to be TV subscribers than a generation ago. Lastly, cord cutting has also increased and will continue to do so as more OTT choices are made available.”

For the time being, in the United States, traditional distribution system subscriptions are in decline, but that is not the case when it comes to revenue seeing as subscription costs have increased slightly (+1% in 2017). However, the report predicts that revenues will begin to decline as early as this year. In Canada, revenues generated by traditional services are already declining (-2% in 2017).

Impact of the Multiplication of Online TV Services: Increased Foreign Content Acquisition Costs?

In 2018, the revenues generated by the OTT services available in Canada still only represent 13% of TV broadcasting revenues, but they are increasing significantly and rapidly. In 2017, the revenues generated from these online services jumped by 29%, whereas traditional sector revenues were down by 1.7%.

Source: The Convergence Research Group. Note that these figures do not include Amazon Prime seeing as the price of what was initially a free delivery service was not increased when the Prime Video OTT service was added.

However, when one takes into consideration the fact that most of the online services available in Canada benefit from the support of the American giants, starting with Netflix, the impacts on the Canadian broadcasting system are not measured in terms of revenue only.

As pointed out in the report, the arrival of OTT services on Canadian soil could also exert upward pressure on the cost of acquiring foreign content.

For the time being, the broadcasting of foreign content, including American content, represents a major source of profit for Canadian broadcasters. However, acquiring content from foreign creators and studios could become costlier and costlier, whereas American producers and other rights holders decide to offer their content directly to Canadian consumers.

Following in the steps of CBS, which launched its CBS All Access service in Canada in April 2018, several traditional networks have decided to develop their own online TV service. For example, NBC Universal is scheduled to launch its hayu reality TV channel in Canada shortly and Disney, which owns the ABC network, terminated its agreement with Netflix and plans to launch its own platform in the United States in fall 2019.

When it entered the Canadian market to transact directly with consumers, CBS announced its intent to reserve shows the rights of which are currently held by Canadian broadcasters or to put them up for sale at prices that only giants such as Netflix and Amazon could afford. The eventual arrival of Disney and other suppliers’ broadcasting platforms will also contribute to increasing scarcity and bids for most of the English-language programming that is broadcast on Canadian TV channels.

However, as mentioned in the report, “US programmers do not want Canadian programmers/TV access providers to sink too quickly given the revenue that comes from programming sales to them. In the end it comes down to maximizing revenue/margin. HBO, Showtime & Starz chose not to go direct instead making deals with Bell Media.”

More Canadian TV Productions?

This may be good news for Canada’s production industry. After all, as Brahm Eiley points out, if they no longer have the means to acquire American content, Canadian broadcasters may end up having to purchase more Canadian content. He provides the example of Bell Media which, in addition to benefiting from its agreements reached with HBO and the others, recently announced the purchase of a majority interest in Pinewood Toronto Studios, one of the largest production studios in the country.

His advice to Canadian producers who are seeking to successfully navigate in this new environment? “For producers, there are new actors to whom sales can be made and with whom coproductions can be done, including niche actors. However, producers will be facing increased competition.”

Danielle Desjardins

Danielle Desjardins offers analysis, research and writing services for media and cultural enterprises through her company, La Fabrique de sens. Before that, she was director of planning for Radio-Canada, where she was responsible for strategic, corporate and regulatory matters for more than 20 years.

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