Digital TV stakes raised in Q3 2005

Digital television services added nearly a quarter of a million new subscribers in the third quarter of 2005, but the race appears to be more or less an even heat between satellite distributors and their cableco counterparts at present. Mario Mota, VP of broadcast and media research at Decima Research Inc., released the latest installment of The Digital Domain, a series of reports on digital media, earlier this month. In it, he estimates that the number of Canadian digital television subscribers swelled by 242,000 in the three-month period ended September 30, 2005. The cable portion of that grew by 7% year-over-year, and now accounts for 46% of the overall market. Growth in satellite television subscriptions, in contrast, doubled between Q3 2004 and Q3 2005, making up 51% of the overall market. "What we’re seeing in probably the past two years is an acceleration in growth," he says. "In fact, every quarter going forward in each of the years seems to be getting better and better in terms of new net adds for digital subscribers," he says. As with most forms of new technology, the initial cost of hardware for digital TV reception is a limiting factor. However, as new equipment becomes more mainstream and more widely purchased, the economies of scale increase and costs come down. Mota says that both Bell ExpressVu and Rogers Cable Inc. have been aggressive in minimizing the cost of their digital cable and HDTV set-top boxes to subscribers. "That seems to be the biggest thing that gets people to go over is the cost of the equipment and the upfront investment they have to make, and that’s probably the single biggest factor as to why people are adopting digital in increasing numbers," he says. "Rogers in particular has had really aggressive growth numbers in terms of trying to get as many of its analog customers over to digital, and it’s certainly having some success. One of the big reasons is that it’s lowered the cost of its digital box." Mota also notes that other large cable providers such as Vidéotron and Cogeco have implemented similar pricing strategies. Those lower costs to consumers come largely from a move to an equipment leasing model for their digital TV offerings, instead of having subscribers purchase hardware outright as was previously the case. "That seems to be the best strategy," Mota says, adding that such a move in the past few months appears to have helped propel ExpressVu’s new net subscriber additions. "The lowest price for standard receiver is $2.50 a month…it’s one of the lowest rates out there from any digital distributor," he says. "Even a HD receiver box is only $10 a month to rent. Bell negotiated a lower equipment cost with its supplier in the US, Echostar …so it was able to offer better prices on its equipment and it’s also subsidizing to a greater extent than it may have in the last couple of years, so clearly trying to get as many of these analog people over to its platform as it can before the cable guys beat them to it." Despites a relatively low 2% of national market share in the third quarter of 2005, so-called "telco TV" offered by telecommunications companies over their IP networks is a rising force in the competition for TV viewers. And, not surprisingly, the two telcos that have a national presence in the wireless telephony market will likely have the highest-profile television roll-outs. "The two wild cards are Telus and Bell," Mota says. While Bell was scheduled to launch its service sometime in the first quarter of 2006, the offering now appears to be on hold. Nevertheless, it will likely be a formidable rival for even the most entrenched cablecos when it does finally bring its TV service to market. "Never underestimate Bell – it’s in some pretty attractive urban markets it’s a very powerful, strong brand…so I suspect they’ll be able to take some customers away," Mota says. Like any new service, however, convincing potential customers that it’s worth the work of switching from their existing TV provider will entail some work on Bell’s part. "I think it’s really banking on its service being a differentiator in terms of what it can do being on the IP platform and some of the things it can do. The challenge is to show people and get them to try it and see it and prove that it is a better service than digital cable." Telus, meanwhile, faces some difficulties with the technological limitations of its Telus TV service, which is is already up and running in Calgary and Edmonton. "Its service is not as robust as some others in the sense that it can only go to two TVs in the household," he says. "I’m not so confident it’s going to have as much success….We’ll see." In regional markets, the IPTV broadcast distribution offerings from the local incumbent telcos have largely plateaued after a relatively brief period of market share gains – mostly at the expense of incumbent cable TV distributors. "I would have said that they were going to be a formidable competitor, and they have been in certain markets, but we’re seeing a slowdown already which is quite interesting," Mota says, pointing to Manitoba Telecom Services (MTS), which has managed to secure more than a fifth of the market for TV services in Winnipeg since it launched approximately three years ago. "That’s pretty significant market share to win away from Shaw in that market," he says. "But it’s been seeing a pretty strong slowdown in subscriber growth over the past several months, so it leads me to wonder whether…it’s always going to tap out or max out at a certain level, so maybe the most that they can get in that market is maybe 25%." And, incumbent telcos in other markets are finding it a similarly tough slog against entrenched cable and satellite TV providers. "Aliant is the same kind of way – it’s a very limited offering in that sense, and it’s kind of deploying very slowly neighborhood by neighborhood," Mota says. "I’m not so sure Aliant is going to post huge numbers. Certainly, they’ll get some market share, but Aliant and SaskTel to a certain extent I think, unless they get more bandwidth or can increase the capacity of their networks so they can serve more TVs in the household and offer HD signals and PVRs down the line…are not going to grow to a huge extent." However, he adds, SaskTel is about to launch high-definition TV over its network, as well as begin offering PVRs (see story on p.4 for another take on HDTV over IP networks). "That will kind of be a new level of growth for them, to see how their growth continues to evolve with full complement of services that…they don’t have today that cable does," Mota says of Regina-headquartered SaskTel. "Once they get the whole arsenal under their belt…it’ll be interesting to see how those numbers play out, but it’s a bit too early to see how those numbers are going to go." While the future fortunes of individual players and technologies remains up in the air, one thing is certain: the entry of new television competitors will widen the fragmentation of the broadcast distribution market that began with the introduction of direct-to-home satellite nearly a decade ago. Asks Mota: "You’re always going to tap into a certain level of dissatisfaction in the market, and everyone’s going to be able to get a bit of market share, but to what extent and at what level?"

Digital TV stakes raised in Q3 2005

Broadcast | February 24, 2006

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