AS OVER-THE-TOP video services, Internet enabled televisions and broadband speeds all escalate, Canadian broadcasters will come to find the market power that allows them in 2011 to exclusively purchase popular U.S. TV shows and movies for Canada will erode significantly.
A new report recently published by RBC Capital Markets identifies an “OTT inflection period” likely starting in 2017 (not coincidentally, right around the time where the exclusive content contracts Astral Media and Corus Entertainment, for example, have with HBO and numerous studios expire) where the likes of Netflix will have enough penetration in Canada – helped along by more robust broadband service and televisions which are web-connected – to surpass the purchasing power of Canadian media companies.
While most believe that OTT services like Netflix, iTunes, the PlayStation Store, Microsoft’s Zune marketplace and any others which might choose to pop up to serve Canadians (one of which is also Canadian entrant Rogers On Demand Online) are simply adding to the viewing experience so far, the RBC report sees future threats since worldwide changes to the current system of release windows is already under way.
Already, theatrical releases are shorter; studios are experimenting with premium VOD, where very current movies are released to VOD at a premium price ($30 in this trial), the DVD market is shrinking since content is now released to VOD and digital download at the same time, and studios are grasping at ways to recover that revenue; and subscription-based, all-you-can-watch streaming seems poised to grow and grow.
“Over the long-term, we believe the scale and reach advantages that OTT distribution affords the U.S. studios will be too compelling not to exploit with the proverbial ‘genie out of the bottle’,” reads the report. “As such, we would expect OTT services to continue to make steady inroads into the current system of release windows via continued ‘experimentation’ by the U.S. studios.”
The report identifies 2017-2019 as the time frame for the inflection point – where things will really change for the TV system here. RBC’s researchers believe it will take that long for Netflix and the like to reach the 20% penetration tipping point and that will also be when Internet-connected TV sets will be in half of Canadians’ homes. Factors like broadband costs and the technical capabilities of the networks needed to deliver high definition over IP – plus any attempts at regulation of the OTT providers which might arise are also unknown factors, however.
Despite that, “(a)s the OTT inflection period approaches, we believe higher programming costs due to increased buying power from OTT services will begin to impact the operating margins of incumbent distributors and broadcasters,” as 2017 approaches, reads the report.
Defensive moves like pushing regulation on the new, foreign OTT providers or the creation of viable, easy-to-use “TV Everywhere” strategies from Canadian broadcasters and carriers for their viewers and customers will also be major swing factors for Canadians deciding whether or not to dump their subscription TV service for OTT providers, says the report.
Right now, the might of Canadian media companies mean they will win the rights to high quality content for the mid term, the research recognizes. “In Canada, the ability to secure premium film and television programming rights largely (albeit not entirely) boils down to who is able to write the biggest cheques to the U.S. studios, which we see as a function of the business model for aggregators and the economics of the output deals for the U.S. studios,” reads the report.
But the U.S. studios have bigger fish to fry than the Canadian market. “U.S. studios are anxious to offset the impact of a declining home video market suggesting new digital window experimentation will continue, if not accelerate,” says the report.
“Over the long-term, we believe the scale and reach advantages that OTT distribution affords the U.S. studios will be too compelling not to exploit.”
– Staff
