Canadians still want loads of video, and are getting it from many sources
WHILE CANADIANS CONTINUE to pull back on their traditional subscription TV services, their interest in video overall shows no signs of shrinkage as they add tens of thousands of subscriptions to various over-the-top providers (but yah, mainly Netflix).
According to new research from Victoria, B.C.’s Convergence Research, cord-cutting in Canada is proceeding at about a 2% rate per year right now. “We estimate 2018 saw a decline of 204,000 Canadian TV subscribers, 2017 a decline of 210,000 TV subscribers, and we forecast a decline of 253,000 for 2019,” reads the report.
While Canada’s traditional TV subscriber base has been sliding by about 2%/year since 2015, Convergence is forecasting that rate of decline will hit 3% for 2020-’21 due to fewer telco TV subscriber additions. Cable and satellite companies have not added net TV subs since 2010.
Convergence logged 28 OTT providers in Canada, led by Netflix, and estimates Canadian OTT access revenue grew 33% to $1.12 billion in 2018, with a forecast of $1.51 billion for 2019. “We forecast by YE2020 there will be more OTT subscriber households than TV subscribers in Canada,” adds the release.
Many of those OTT households, however, will of course remain pay-TV subscribers, too. That said, as of year-end 2018 “we estimate 30% of households did not have a traditional TV subscription with a cable, satellite, or telco TV access provider, up from 28% of HHs YE2017,” reads the report, “and forecast 32% of HHs YE2019. We estimate 2018 saw 346,000 cord cutter/never household additions.”
The report cautions it has not assigned any video revenue to Amazon Prime since it did not increase the price of that service when it added video to it.
“Although Canada currently has less than half the OTT plays of the U.S., Canadian programmers/TV access providers are increasingly exposed to the global OTT war being waged by large American programmers and independent OTT providers,” warns the report.
“American programmer direct to consumer OTT plays have started to impact with CBS All Access going direct and not selling select series to Canadian distributors, NBCU’s hayu up against its’ linear Canadian distributors, and Discovery’s launch of Golf TV OTT in Canada. We expect more entries as programmers expand their OTT platforms globally.
“Simultaneously, Canadian programmers/TV access providers face independents’ Amazon, DAZN, and Netflix (as well as Apple, Facebook, Google, Quibi) rising content spend, putting pressure on traditional TV and in certain cases providing U.S. and international programmers more leverage in Canadian negotiations.
“On the one hand, U.S. and international programmers do not want Canadian programmers/TV access providers to sink too quickly given the revenue that comes from programming sales…”
“On the one hand, U.S. and international programmers do not want Canadian programmers/TV access providers to sink too quickly given the revenue that comes from programming sales (HBO, Showtime and Starz chose not to go direct instead making deals with Bell Media), on the other there is a direct to consumer opportunity as well as an opportunity to sell to Amazon, DAZN, Netflix, etc.,” adds the research.
When it comes to revenue, that is mimicking the decline in subs, on the TV and broadband sides of the wireline providers. “We estimate 2018 Canadian cable, telco satellite TV access (not including OTT) revenue declined 2% to $8.58 billion and forecast 2019 revenue will also see decline,” says the report.
Things are still growing well on the broadband side though. “Canadian residential broadband subscriber additions we estimate were 387,000 and revenue grew 8% to $8.68 billion… we forecast about the same additions and revenue growth for 2019,” says the research.
WIRELESS
“We estimate 1.49 million Canadian wireless subscribers were added in 2018 (the largest annual wireless subscriber additions since 2011) and wireless service revenue grew 5% to $21.2 billion, we forecast about the same additions and revenue growth for 2019,” reads the report.
U.S. MARKET
Based on 66 OTT providers, led by Netflix, Hulu and Amazon, Convergence estimates U.S. OTT access revenue grew 37% to US$16.3 billion in 2018, and it forecasts US$22 billion in 2019.
It’s still good to be in the traditional TV business, however, since OTT is still in a global ramp-up mode and in order to gain access to a wide variety of content, users must find and subscribe to a number of individual channels. “Even with new OTT offers from Apple, Disney, NBCU, Quibi, Warner, and billions of OTT revenue added, and although U.S. OTT subscriber household trajectory will well surpass U.S. TV households, U.S. TV subscriber ARPU will still be three times U.S. OTT subscriber household ARPU in 2021,” reads the Convergence report.
“We estimate 2018 U.S. cable, satellite, telco TV access (not including OTT) revenue declined 3% to $103.4 billion and forecast 2019 will see similar decline… 2018 saw a decline of 4.01 million U.S. TV subscribers, 2017 a decline of 3.66 million, and we forecast a decline of 4.56 million TV subs for 2019; hence the U.S. TV subscriber base will decline 5% in 2019, up from 4% in 2018.”
At the end of 2018, Convergence estimates 30% of households did not have a traditional TV subscription, up from 26% a year earlier – and predicts a rise to 34% by the end of 2019.
Broadband still continues to grow well as 2.85 million U.S. residential broadband subscribers were added in 2018 and revenue grew 7% to US$61.6 billion. It is forecasting additions along the same level this year.
“Cable continues to add the lion’s share of residential broadband subs (telco has lost residential broadband subs every year since 2015). CenturyLink and Frontier were responsible for the majority of 2018 telco broadband losses; we forecast they will contribute the majority of losses in 2019 as well,” reads the report.
“With ARPU half the traditional TV average, lackluster margins, programming gaps and technical issues, live multichannel OTT provides little counter to category killers Netflix and Amazon that sell at lower price points and essentially without advertising. We believe a number of OTT plays, including large and niche, will fail due to insufficient subscriber traction, cost, and competition.”
“The TV-Movie Industry is being reconstructed from the inside and by the outside, as programmers now directly compete against their traditional TV access and independent OTT buyers that rival in terms of content spend,” it continues. “Traditional TV access subscriptions continue to decline (revenue has started to decline) as subscribers pay higher prices due to ongoing programmer price increases, while traditional TV advertising revenue plateaus (we project 2020 revenue will be on par with 2016 revenue).”
Watch for some OTT failures coming, too, warns the company. “With ARPU half the traditional TV average, lackluster margins, programming gaps and technical issues, live multichannel OTT provides little counter to category killers Netflix and Amazon that sell at lower price points and essentially without advertising. We believe a number of OTT plays, including large and niche, will fail due to insufficient subscriber traction, cost, and competition,” says the report.
(Ed note: Shaw and Rogers likely did the right thing in pulling the chute on shomi so quickly.)
While Netflix continues to gain subs at an impressive clip and others increasingly want in on that action, directly, more upheaval is inevitable. Business models in Canada and elsewhere will be forced to change as content owners continue to go direct to consumers, all around the world,
“Notably, Disney and WarnerMedia have moved away from being Netflix and Amazon Prime’s (in the US) suppliers respectively and embraced OTT, Hulu spends more on content/sub than either Amazon or Netflix and continues to discount (notably with Spotify),” lists the report, “CBS/Showtime’s OTT subscriber trajectory has been faster than expected, Discovery has backed and supplied Philo, gone live with Hulu, Sling, YouTube TV, and will be launching an OTT service with the BBC, NBCU will be launching an OTT service in 2020, and Viacom has backed and supplied Philo and others, acquired Pluto and AwesomenessTV, and is producing for Amazon and Netflix.”
(Ed note: Whew.)
For more, or the full reports, please visit the Convergence Research Group web site.
