KELOWNA – Offering television is still a must, but it’s time to move away from the old-fashioned way it’s still structured and priced, according to the closing panel of the annual 2019 Canadian Communication Systems Alliance conference.
In the Tuesday session titled “embracing the future of video”, four panelists told delegates there remain good reasons why network operators shouldn’t (yet) walk away from TV in favour of just offering customers a broadband pipe (leaving them to find video on their own, likely with the help of one or more of the Silicon Valley tech and content giants). While broadband earns big margins for any ISP, offering TV is still necessary, but much has to change to make that video more affordable and flexible for everyone. The future is coming fast and the old models won’t hold.
Thanks to the rising costs of programming, and the increasing numbers of customers who are cutting or trimming their traditional pay TV packages, ye olde cable package is sure not what it used to be. Margins have shrunk dramatically from the good old days, leaving some BDUs (or MSOs/MVPDs in the States) wondering how much longer a linear TV offering is still worth the cost and trouble.
There’s a real danger then, said OUTtv CEO Brad Danks, if our current network owners shift away from selling TV subscriptions, that space will be filled by the likes of Amazon, Google, Apple, Roku and others – and then the regulated Canadian television system will simply die. Readers are well aware those companies are not regulated and have no obligations towards the funding and airing of Canadian content, or making it discoverable. Heck, they don’t even have to collect sales taxes, let alone kick in some dollars to the Canada Media Fund.
Seeing the big BDUs get out of the TV business, “I think very much may happen and then that may be taken over by the Apples and Amazons,” said Danks. “It will really change the configuration of the Canadian system pretty quickly – and we've created this vertically integrated system in Canada that's supposed to keep everybody out and of course it hasn't worked even a little bit.
“We're really going to have to look at how we restructure our regulations because we are going to have the foreign companies essentially are operating as our BDUs.” – Brad Danks, OUTtv
“And so we have this real question, if Rogers, Bell, and Shaw turn around and say, ‘We're no longer BDUs anymore, there's just no money in it’ and cede that territory, we're really going to have to look at how we restructure our regulations because we are going to have the foreign companies essentially are operating as our BDUs. It's certainly a possible, perhaps likely, scenario for the future.”
That said, there remain more than enough customers right now who still like and want to keep linear TV, for a wide range of reasons like sports and local content to ease of use and bundled savings. In fact, the bundling bit is so important that in order to better compete, TekSavvy launched television this year and Iristel is coming with a TV product later this year. Margins are slim to none on those new TV products, but those companies are in the business of adding customers – and margins on broadband make up for the hit taken on video, as long as new customers are signing up.
Adara Technologies’ Joe Nucara insisted his carrier clients which offer video do far better on the total subscriber front than those who do not. “Every operator that I know of that… has dropped video service or de-emphasized video service… their broadband subscriber growth rate is running one half to one fifth of the broadband subscriber growth rate of others who are actually bolstering their video subscription,” he said.
WTC Communications director Mike Lynn noted something similar in his regions (WTC serves multiple communities in southeastern Ontario). “We've seen that in the markets where we don't have a TV product. Our numbers aren't nearly as good. We're not selling nearly as much broadband.”
However, Fidelity Communications (a U.S. MVPD based in Missouri but with operations also in Oklahoma, Arkansas, Louisiana and Texas) video product manager Loren King said competitive pressures the U.S. market have forced his company to change. Fidelity has made a number of changes to make video cheaper for them, and more flexible for their customers, including cutting money-losing local programing altogether, going all-cloud IPTV, and giving away Amazon Fire Sticks to round out a customer’s in-home experience.
In October, Fidelity began to sell a cloud-based IPTV app-based service outside of its legacy QAM infrastructure – and it has taken off, King said. For its two highest tiers of programming offered via the app, the company gives customers an Amazon Fire Stick so they can access the Fidelity app – and to round out their programming options. Set top costs? “zero dollars”, said King. Truck rolls when there is a problem? Near zero. Most trouble calls so far have been for dead batteries in the remote, he added.
Plus, “seventy-eight percent (of app customers) are taking our top service where we give them six streams, we give them 200 hours of DVR and they get replay and all that stuff and we throw a fire stick at them.” None pay the $27/month rent for the set top boxes required by its legacy system. Thirty-three percent of the trouble calls for its legacy cable system require a truck roll, King reminded, as a comparison.
Nucara added he saw at least 8-10 years of life left in the set top market simply because so many people are still 
comfortable with the technology and they do act as effective content curators. However, he and King clashed on the idea of local content. Cable companies and others have long insisted local is where they win (delivering local stations as well as their own community channels) and retain customers. King disagreed.
He told delegates of the company’s operations in Arkansas where for more than 25 years Fidelity broadcast local high school sports, but as viewers dwindled, so did revenues – so much so that their local channel was losing $1 million a year. So, they shut it down. Did it anger people, “yes”, said King, but it still made sense to do it. “It was painful to take it off but after four years in a row of losing a million dollars a year, it came down to bottom line… nobody is watching those kinds of things.”
Nucara rose sharply to the defense of local programming, saying valuable local content can be delivered to customers which doesn’t come with the cost of live sports productions. Nucara said he is helping a Quebec operator bring traffic cams to its local channel – content which costs nothing since they are provincial government webcams. “It is in the top 30 most viewed of 500 channels by total time… it’s almost up there with the fireplace channel,” he said.
The key to offering TV is to offer as much content as possible, as affordably as possible, in as many ways customers can find it as possible. For broadcaster OUTtv, that means doing as much original, exportable, content as it can afford, to populate its linear and on demand platforms all around the world.
“It’s got all the Viacom networks, it's got all the Scripps networks on it. I'm still paying for those guys and it's free, 150 channels.” – Loren King, Fidelity Communications
But the pricing and packaging has to get with it. King said his expanded basic costs $120/month, a price he admits can’t be supported much longer – but it’s the cheapest they can make it and still make “seriously, a dollar.” At the same time, he’s now competing with the likes of Viacom’s Pluto TV, a free ad-supported online VOD service which features all of the Viacom channels to which he still pays a steep wholesale fee.
“It’s got all the Viacom networks, it's got all the Scripps networks on it. I'm still paying for those guys and it's free, 150 channels.” So, King says Fidelity has brought Pluto into the tent on its cloud service – on a revenue-share basis with the AVOD service.
OUTtv is available as a linear channel in Canada and other countries, on demand on various platforms (such as Amazon and Apple in Canada and elsewhere). Danks noted his business model has grown and changed over time, everywhere but here in Canada.
“The problem is we're priced now as one channel as a hybrid, so we get a per-sub fee from the cable company and that covers our linear and it also has our SVOD thrown in. So, we can sell the SVOD for four dollars but we're not allowed to because we have to provide it at a lesser price to the consumer as part of that hybrid model,” Danks explained.
“At the same time, because the cable company is paying us a sub fee, they don't want to give us a broader market penetration because they'd have to pay on broader market penetration and therefore we don't have enough distribution to sell more advertising.
“In a perfect world we would have a linear service with very broad market penetration and then we would have an SVOD service attached to it where we could upsell our core major consumer. So. my issue right now is the system is stuck in this hybrid model that doesn't really work for anyone. It doesn't really work for the cable companies either because the benefit of that upsell, which we would revenue share with them like we would with the app on Amazon, isn’t there.
“The pricing model is something that needs to change… but it really is what Amazon and Apple are pulling off right now. That's the disruption that I think is coming, and it's the most significant.”
