RECENT MOVES BY GLOBAL MEDIA PLAYERS to go over-the-top (OTT) and direct-to-consumer (D2C) mark a tipping point for the media industry and could have profound, long-term implications for the Canadian media landscape, says a Bay St. analyst.
A research report by BMO Capital Markets telecom/media/cable financial analyst Tim Casey notes that Canada’s traditional television broadcasters, (whose business models rely on “reselling” content from Hollywood), are at a greater risk than television distributors (BDUs) who offer broadband service, which he describes as “a natural business hedge against changing viewing habits”.
“Television distribution is a lower-margin business compared with broadband given roughly half the revenue is shared with the program supplier”, he writes. “Any shift of dollars from the traditional television bucket to the internet bucket represents a margin lift for the BDU. The revenue shift out of lower-margin video services to higher-margin broadband services will not be one for one, but we think the impact will be manageable.”
Cord-cutting/shaving concerns will accelerate as viewing habits and preferences continue to shift toward OTT streaming services. But Casey added that Canadian broadcasters still have time to refine their business plans, as Hollywood’s shift to stream content in a D2C model on a global scale will take some time.
“Existing rights deals between U.S. suppliers and Canadian broadcasters will remain in place and it will take years for them to expire”, he continued. “As a rule of thumb, rights deals are unique agreements with respect to length, windows, and platform. Therefore, it is difficult to generalize as to how quickly any individual Canadian broadcaster will lose access to certain programs.”
That said, Casey speculates that Corus stands to incur the most collateral damage from these recent developments, specifically Disney’s plan to launch its own branded movie and TV service. Noting the significant amount of programming/content that it licenses from both the newly merged Discovery and Scripps and Disney for its raft of kids/family-focused television channels, the report says that U.S. studios may extract higher rents for programming under the threat of D2C or outright retain programming for their own D2C efforts.
In addition, Heritage Minister Joly’s pending CanCon policy review decisions add another level of uncertainty to the future of media in Canada, added Casey.
“The federal government has previously ruled out a ‘Netflix’ and/or an ISP tax”, he continues in the report. “The Heritage Minister recently ordered the CRTC to reconsider decisions that reduced the percentage of revenues some television broadcasters must spend on Canadian content/programming. We think both announcements (no Netflix tax and higher television broadcaster tax) are more harmful than helpful to the Canadian broadcasters.”
