Why is Bell TV still losing money after a decade in business?

Ten years in business. Nearly two million subscribers. No profit. This is Bell TV today. It begs certain questions: Is satellite broadcasting a viable business model? If so, what’s wrong with Bell? Around the world, most direct-to-home (DTH) satellite TV providers “of the size and scale of Bell TV…are generally doing OK,” says Patrick French, Singapore-based senior analyst and head of the Singapore office for Northern Sky Research LLC (NSR), a market analyst firm located in Cambridge, MA. In the U.S., DISH Network LLC has experienced issues related to churn over the last few quarters, but it seems to be holding its own – profits are up year over year, according to the company’s fourth quarter 2008 financial statement. DirecTV Inc. is also doing well south of the border in terms of profit and subscriber growth. It’s putting its eggs in the “high-quality subscriber” basket, aiming to attract customers who sign up for elite services and bundles. Further afield, operators in the U.K. and Europe are doing well, French says. A number of new DTH providers have launched in India recently, but it’s too early to say if they’ve broken even. “The first few years tend to be money losers as they’re building up the service,” French says. But Bell TV is no start-up. Known as Bell ExpressVu when it began in the 1990s, this division of Bell Canada Enterprises Inc. now has 1.8 million subscribers. Profit, however, has been scarce. “Bell TV (DTH) has yet to generate positive cash flows, even after 10 years in operation,” the company says in a recent CRTC submission. Why is Bell TV struggling while its global contemporaries thrive? The company couldn’t be reached for comment before deadline, but Bell does provide a partial explanation in that CRTC document. Commenting on TV station licence renewals, it blames “the ever-increasing requirements to add expensive satellite capacity to meet regulatory and consumer demands for new specialty and pay services, as well as bandwidth-intensive high-definition (HD) television services.” Bell also points out that it’s obliged to carry regional over-the-air stations, and it has to contribute to the local programming improvement fund, among other things. “If Bell TV’s cash flows continue to fall through increased regulatory burdens, it will not have the resources to meet all of the demands,” the firm writes. All of the above is in aid of Bell’s argument against fees for carriage, which, if approved by the CRTC, would see BDUs such as Bell paying TV stations for the right to broadcast the stations’ content. Stations have been asking for carriage fees for a while, and although the CRTC previously rejected them, the commission is poised to consider the fees once more in station licence renewal hearings this week. Bell says it’s tackling the profit problem. The firm is negotiating terms with broadcasters to come up with a viable business relationship, although the “fluid state” of the stations themselves hampers those efforts. “Bell TV is seeking resolution prior to the 30 April 2009 expiry of a condition of licence that suspends the requirement to implement program deletion,” reads Bell’s CRTC submission. Peter Bissonnette is president of Shaw Communications Inc., which operates the DTH satellite provider Shaw Direct (formerly known as Star Choice). He says his company faces similar regulatory burdens, but Shaw Direct contributes positively to Shaw’s overall cash flow. It wasn’t always so. “When we first acquired Star Choice, it was losing about $350 million a year,” Bissonnette says, recalling the mid-‘90s purchase. “It wasn’t a model we were looking for.” Shaw implemented a new management structure, replacing some of the key Star Choice sales directors with people from the cable TV operation and integrating the units. “It’s amazing how many costs were buried in logistics,” Bissonnette says. Shaw developed a new work-order system to manage the division’s retail processes, honing its relationships with retailers. “Many of them have their own installation teams – where they don’t, we do it ourselves or we refer the work to someone we work with.” Attaining the right mix hasn’t been easy. Sometimes Shaw Direct has to make tough decisions regarding station carriage – which ones are customers clamouring for? Which ones should be dropped? Last May Shaw Direct removed four local stations from its satellite signal, including a Saskatchewan CBC station and a CTV Calgary station. The firm added speciality channels such as YTV and MuchMusic to its “Essentials” package, and it introduced new standard and HD services, including Wild TV and TLC HD. “We were trying to avoid duplication of programming,” Bissonnette says. Nonetheless, some customers weren’t happy. Shaw Direct eventually brought back the CTV Calgary station. Meanwhile other stations the company didn’t expect to perform have done well. “Wild TV – we resisted carrying that. But there were so many people telling us to add it, we did. Our customers drive our behaviour.” In Bissonnette’s opinion, Bell might be doing itself a disservice by subsidizing DTH customer-premises gear. “They give away a lot of equipment. Why would you be giving it away? It doesn’t make business sense.” According to a research report from Global Industry Analysts Inc., DTH average revenue per user (ARPU) is increasing across the board, and the worldwide DTH subscriber base will hit 133 million by 2010. Annual compounded growth will be 9.6%, with much of that occurring in emerging markets, instead of the relatively mature North American and European markets. Bell TV doesn’t seem to be indicative of the overall satellite TV market. DTH “can be made a viable long-term service,” says French from NSR. Stefan Dubowski is a freelance writer in Ottawa. You can reach him via sdubowski@rogers.com.

Why is Bell TV still losing money after a decade in business?

Broadcast | April 29, 2009

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