There is growing consensus that Canada’s economy is heading into a recession as part of a broader international economic slow down.
As consumers react to tighter economic conditions, it is generally expected that they will adjust their budgets, targeting discretionary spending first. A study published by JupiterResearch, discussed in MediaPost Online Media Daily on October 6, 2008, concluded that nearly one-third of consumers in the United States expect to cut back going out to the movies while 12% will reduce spending on premium cable programming channels and 2% will pull the plug on Internet services.
To provide some Canadian perspective on this issue, it is useful to review trends in subscriptions to multi-channel video services (also referred to as BDU services) relative to the growth rate in real gross domestic product (GDP). GDP is a pretty standard indicator of economic performance. BDU subscriptions are a reasonable proxy for how consumers might adjust spending on a discretionary service that, unlike wireless and Internet, was found in a large majority of homes in the early 1990s, as is the case today.
Canada went through a serious economic slowdown in the period 1990 to 1992, dipping into a recession in late 1990 and into 1991. This is reflected in the annual real GDP growth rates. Subscriptions to multi-channel video services, offered at that time by cable companies alone, did not decrease during that period. However, growth rates stabilized at approximately 2.5% annually, which is just slightly ahead of normal household growth.
Subscriptions to cable services did not contract until 1995. However, this is likely due to the introduction of additional programming services that, through “negative option” billing, significantly affected consumer rates.
Since 1998, the trends in BDU subscriptions have tracked quite closely with real GDP growth, with an exception in 2001 when growth in subscriptions notably outpaced economic growth. In 2001, satellite companies added more than 600,000 subscribers, only some of whom came at the expense of the cable companies. As a result, overall BDU subscriptions increased 5.7% from the previous year.
In 2007, the trends in BDU subscriptions and real GDP started to exhibit signs of slower growth rates. Statistics on GDP for the first two quarters of 2008 indicate further economic weakness. So far in 2008, BDU subscriber levels among the publicly-traded cable and satellite companies are continuing to increase at quarterly growth rates that are in line with those experienced in 2007.
Note: Data used in this analysis was sourced from Statistics Canada (Catalogue Nos. 56-001-XIE and 13-019-XIE and the Canadian Radio-television and Telecommunications Commission. For links to these sources and other articles referenced, go to www.giganomics.ca.
Suzanne Blackwell is president of Giganomics Consulting.
