I had hoped to get some thoughts down about this a while ago, especially in the wake of the Usage Based Billing controversy in February. Basically, SNL Kagan has been publishing numbers for the last year indicating that cable/satellite television subscriptions are down. There’s been some commentary about how much of this is attributable to people actually getting rid of cable/satellite in favour of other options, rather than just normal numbers seen in a lousy economy.
Basically, I’ve been wondering what these numbers may mean for Canada. As an active cable cutter myself, I’m wondering if there’s any data which may indicate that things are moving in a similar direction here. Mostly, I’m interested in this for what it might mean for some genuine product innovation from our cable/satellite providers, rather than some of the predictable measures taken to make it more difficult/expensive to download entertainment content, legal or otherwise (ie – Usage Based Billing).
So, let’s look at those US numbers:
In August of 2010, SNL Kagan released results from their quarterly study of Cable, Satellite and Telco providers of television services and the results were startling. For the first time in history, (SNL Kagan has tracked the numbers in some form since 1980) total subscribers went down. Satellite and telco providers added subscribers at the expense of the traditional cable providers, who lost over 700,000 subscribers, but not at a rate sufficient to offset subscriber losses as a whole.
SNL Kagan urged caution in reading too much into the results however:
Although it is tempting to point to over-the-top video as a potential culprit, we believe economic factors such as low housing formation and a high unemployment rate contributed to subscriber declines in the second quarter. We are also seeing churn resulting from the broadcast digital transition, which boosted video uptake early last year, as many have abandoned their paid subscriptions once initial promotional contracts expired.
In November, SNL Kagan released figures for the 3rd Quarter, which were also a net decline in subscribers. Again, cable providers lost over 700,000 subscribers and Telco and Satellite saw gains, but overall, the industry lost subscribers. SNL Kagan also changed their tune as to the factors contributing to the decline.
Operators are pointing to a continuation of the forces that pushed subscriber gains into negative territory in the second quarter, including the weak economy, high unemployment and elevated churn of former over-the-air households. However, it is becoming increasingly difficult to dismiss the impact of over-the-top substitution on video subscriber performance, particularly after seeing declines during the period of the year that tends to produce the largest subscriber gains due to seasonal shifts back to television viewing and subscription packages.
This past week, SNL Kagan released their numbers for Q4, and it appears the slide has been stopped. Net subscriber additions moved back into positive territory, barely, at 65,000 overall additions. They’re still pointing at cable cutting as a concern for the industry:
…the greater underlying issue remains more screens and alternative platforms competing for users’ attention than ever before.
So, do we have similar trends in Canada? It’s difficult to tell, since I can’t find anyone like SNL Kagan tracking this data. I did what any lazy yet curious person might do in this case: I asked a question on Quora, and got a few decent links.
The CRTC tracks these numbers fairly well, though I haven’t found 2010 data to compare against what SNL Kagan found in the US. But the numbers for 2005-2009 contained in the Communications Monitoring Report suggest that things are going fairly well for the cable and satellite providers in Canada.
Television service providers are seeing pretty significant revenue growth lately. There was a 7.4% increase in top line revenue across the industry in 2009, and a compound annual growth rate (CAGR) of 8.8% in the last 5 years. Significantly, in comparison with the US numbers, subscriber rates are climbing as well, with steady annual growth over 2% for the last 5 years, and a CAGR of 2.6%. So subscriber rates are growing, and it appears that providers are getting better at parting customers with their dollars, since revenue growth is outpacing subscriber growth.
I haven’t been able to find anything which mirrors the US results that SNL Kagan has been finding. It seems things are pretty peachy for television service providers in Canada, despite the economic downturn. And with numbers like these, it’s tough to imagine seeing much in the way of what might be termed “interesting” or “innovative” out of providers like Rogers, Bell and Shaw. Life is good, the platforms work well, and cable cutting weirdos like me are a fringe element. Overall, consumers voting with their dollars seem relatively happy.
I’ve really taken a while to get to this, but what is it that cable cutting weirdos might want to see out of Bell/Rogers/Shaw et al? If it were me running these divisions, I would certainly be spending most of my time and money to improving infrastructure and offering more services over existing platforms to get more dollars out of existing customers. And overall, these offerings are pretty neat. Compare cable today to what it was 10 years ago. You have a ton of movies available on PPV, can catch up on missed tv series with Rogers on Demand and have hundreds of channels compared with what used to be dozens. These are great services, and Rogers is reaping the benefits of this particular bit of innovation and risk taking.
But if it were me, I’d be asking “What’s Next? What might threaten this great franchise in which we’ve invested billions of dollars and built a massive business around?” I’m sure discussions like this are happening at the highest levels, but I can see how it would be tempting to sort of do nothing but maintain and try to protect the current business. Here’s some suggestions:
Resell better but seemingly competitive services
Look, Netflix is a great service. Consumers want it. And Netflix is coming. They’re everywhere. They’re on Bluray players, computers, game consoles. And you’re not. And you never will be. Instead of making it harder for consumers to get, make it easier. My sense is (and this is totally gut), Netflix is not an entirely competitive platform. It’s complementary. Let’s face it: if you’ve got enough disposable income to consider Netflix, you’re probably a cable customer anyway. You need cable to get stuff you can’t get on Netflix, like live sports, news and cable channels that just aren’t going to make it there (ethnic programming for example). Bundle Netflix with cable and an unlimited Internet package. I think existing bundle customers would snap it up, and you’d get a pile of people upgrading to higher tiers of Internet access as a result.
Build Hulu Canada
No offense to the hard working people in your web divisions, but your Internet offerings suck. Some are better than others, but overall, they’re terrible and frustrating. Rogers is ahead of the pack here, with CityTV.com, and an iPad app for viewing shows, but overall, the offerings are bad. I have no idea what your internal numbers tell you about how many people are actually watching shows via your web sites. But I’ll take a guess: They’re terrible. A good chunk of that is attributable to the fact that the web sites stink, and it seems obvious that there’s no genuine interest in making a genuine effort to make this channel work. The people in your web divisions have been given an impossible task. It’s almost as if you told them: “Make it look good, but not so good that people actually start using it.” I can’t tell you how infuriating it is to be blocked from watching US based web sites like NBC.com or Hulu, but be able to see what I COULD watch in the US in comparison to what I can watch here. This has nothing to do with geographic rights. Compare what NBC does with Saturday Night Live content to what Global does with it. You guys aren’t trying hard enough.
There’s simply not that many rights holders in Canada. And the biggest ones are also the ones that own the cable and satellite companies. Bell Media, Rogers Media and Shaw Media are the largest bidders for US based shows. They could probably hammer out a deal over lunch, license Hulu’s technology for a stake in a spinoff company and be up and running in weeks. Get it done, and bundle premium subscriptions along with your television service.
Offer better boxes
Anytime I show my XBMC and SageTV living room rig to friends, I get a lot of jaw drops. I understand that most consumers are not going to put in the time to mess around with programs like these, but the boxes that you rent and sell to deliver and record TV are pathetic. They deliver a user experience from 2003. Do better. XBMC has successfully built Systems on a Chip. Boxee did it with their Boxee Box they developed with D-Link. I realize there’s security built into the boxes that you provide that is mandated by the content creators you license from, but get creative. Invest some dollars into solving those issues with a box that’s a pleasure to use. Make watching TV fun.
I’d say any two of these services would be enough to bring me back to cable. And there’s probably other great ideas that could do the same. But I can see how it’s easy to ignore me. You’re providing a great service that most people can’t do without, and are extremely profitable. Things change quickly in this business though…