THE SUBSCRIPTION TELEVISION industry likes to say that outright cord-cutting (defined as when a consumer abandons a TV subscription altogether) is still a pretty small phenomenon.
So far, overall, that remains technically true. The latest numbers show about two percent of Canadian households with a TV subscription have chosen to cut the cord and stop subscribing to traditional TV. Generally, it’s been a story of “flat is the new up”, while inside of the likes of Rogers, Shaw, Cogeco, Bell and others, hardworking employees are doing their best to swallow hard every day and manage substantial TV subscriber losses.
The steep decline in TV subscribers from some of the traditional cable and satellite carriers over the past five years has been mitigated by knowing most of those customers were merely switching providers in search of a better deal or better user experience. However, with growth numbers from Telus Optik and Bell Fibe now slowing, the news is worsening.
The coal mine’s canary here is the Canada Media Fund, which gets most of its revenue from TV subscriptions. It said last week it will hand out $21 million less to Canadian content producers compared to last year because of a shrinking funding base.
In the past five years, according to the aggregated financial returns the large carriers must file with the CRTC, Bell’s Satellite TV subscriber base has shrunk by 30%, Shaw Cable has lost 24% of its TV subscribers, Rogers Cable has lost 20%, Cogeco Cable has lost 15.7% and Shaw Direct has lost 9.6%. These figures are as of August 31, 2016 and were posted to the CRTC’s web site in late February.
Only Vidéotron has bucked the trend, growing its TV subscriber base by 1.8% over the past five years.
Of course, Bell Fibe and Telus Optik TV have been formidable competitors in that time, claiming customers from the cablecos, going essentially from none to 1.33 million and 915,000, respectively, as of August 31, 2016. Where the cablecos once boasted TV subscription penetration rates of better than 60% of homes passed by their plant, that number has fallen to well below 50% (again, save for Vidéotron).
As well, as subscriber growth for Fibe and Optik slows, that doesn’t help the financial losses incurred by those two products. The TV business has never turned a profit for either one. Bell Fibe TV’s loss before interest and taxes, according to the CRTC filing, increased 87% to $436.7 million in 2016 and Optik TV’s loss grew deeper by 25% to $613 million in the 2016 broadcast year, according to those CRTC filings.
The saving grace for the cable companies – and the many thousands who work for them – is that despite the TV subscriber declines, annual consumer rate increases has at least delivered financial stability (to the chagrin of consumers who bristle at the increases, of course). Shaw, Rogers, Cogeco, Vidéotron, even Eastlink, all earned about as much revenue, according to the CRTC filings, from their TV business in 2016 as they did in 2011. PBIT has fallen by 22.7% at Rogers Cable, and 7.6% for Shaw Direct. Vidéotron, Cogeco, Eastlink and Bell Satellite, however, have all seen overall profit growth in that time.
“Put another way, that is 721,000 broadband customers on those networks who could also be TV customers.”
As we all know, subscriber growth and stability for each of these companies is coming from the broadband side – and it is the sub counts there which really reveal TV’s wane among consumers. At the end of December 2016, according to its corporate year-end financial results, Rogers had 325,000 more wired broadband subscribers than TV subs, adding 97,000 internet customers while losing 76,000 TV subscribers during fiscal 2016. Out west, Shaw has 396,000 more broadband customers than TV customers.
Put another way, that is 721,000 broadband customers on those networks who could also be TV customers, but choose not to pay for TV in the traditional way.
Cogeco’s ratio of broadband and TV customers is far better than both Rogers and Shaw, even on a percentage basis. Cogeco has just 22,000 more broadband customers than TV subscribers. Is that a due to Cogeco’s more suburban customer base, or is it perhaps because it has had the very customer-friendly, advanced TiVo cable system (with integrated Netflix and YouTube) in market since the fall of 2014, while Shaw has just begun to phase out its old cable system in favour of Comcast’s X1 platform (BlueSky TV) and Rogers will only go there in 2018.
Vidéotron has also been remarkably resilient in its markets and still counts more TV customers than broadband (1.69 million to 1.61 million at the end of 2016). Is that because of something distinct about the Montreal and Quebec City markets, its low-pricing strategy, its illico TV system or the content found there?
It’s hard to say, but the customer losses detailed above are a frightening thing – and now that Fibe and Optik growth seems to be slowing it is a serious concern for those two companies, given their ongoing losses there, and for the TV industry as a whole.
It’s perhaps why Heritage Minister Mélanie Joly always kept saying “everything” is on the table (including a potential levy on broadband subscriptions) during her 2016 Cancon review. Perhaps because of that, new funding formulae for Cancon could find their way into the overhaul of the Broadcasting and Telecom Acts when that begins later this year.
What has to hearten both Rogers and Shaw though is the fact that Comcast’s X1 rollout in its own markets has not only stanched the TV sub losses, but has driven video subscriber growth for the old cableco which now sees itself (rightly) as a tech leader. Maybe five years of losses can begin to be reversed and Cancon funding, stabilized as Shaw and Rogers race to roll X1 out here.
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