Shaw needs better promotions to draw new TV subscriptions, analysts say

Competition for subscription TV viewers in the West is escalating as Shaw Communications Inc. has almost chopped prices in half for its new Gateway digital set-top boxes. But analysts continue to say Shaw is under pressure to follow competitor Telus Corp. by further subsidizing its Gateway product with a special promotion. Shaw launched its new Gateway HD personal video recorder (PVR) cable box this summer, and last week, the company announced that its combined Gateway box and Portal unit (for connecting multiple TVs in the home) is available for $350, down from $600. But Shaw is under pressure to offer a better promotion for its TV service as Telus, its main competitor in the West, continues to draw new television customers to its fibre TV service. Telus, in a promotion for its Optik TV IPTV service, offers a free set-top box and free Xbox game console on a three-year contract. The promotion has been going for two years. Dvai Ghose, an analyst with Canaccord Genuity, said in an interview that Shaw should subsidize its devices as Telus does. “Clearly, they haven’t gotten anywhere by not subsidizing the device at all,” he added. “But given you’re still paying about $400 from Shaw, versus you get it free from TELUS if you take a three year contract and you get a free Microsoft Xbox, I think this is a bit of a questionable marketing strategy.” Jim Johannsson, a spokesman for Telus, said in an interview that the company has added 90,000 subscribers to its Optik TV service in the first half of this year. Johannsson added that the new subscribers brings Telus’ total to 400,000 TV subscribers, up from a count of zero in 2005, he said. Johannsson said he wouldn’t attribute all of the growth to the company's special promotion, but said Telus' Optik TV is superior to old-fashioned cable with advanced PVR functions for multi-television homes and more than 100 high-definition channels. One of the service’s most attractive features is that it allows recording to be activated from remote smartphones or PCs, a feature Shaw’s Gateway service does not yet have. A user can record a program directly from a smartphone or from a PC that’s connected to the Internet, he said. “If you’re at work late, or you’re held up with friends and you still don’t want to miss Big Bang Theory at nine o’clock,” Johannsson said, “you can jump on your smartphone, access your PVR and set it to record.” In a release, Shaw said its Gateway set-top box can be purchased through a three-year plan for $10 per month. An additional home portal can be purchased for $140, or $4 per month on the plan. Shaw said its Gateway service offers subscribers access to 120 HD channels and customizable skip, which allows users to fast-forward, as well as 500 GB of storage capacity. Greg Goodwin, vice-president of “future friendly home services” at Telus, said in an interview that the company continues to add to its HD channel offering. Right now, Telus offers 109 HD channels, Goodwin said, and the service features 119 hours of HD storage capacity and 295 hours of standard programming storage. Goodwin said Telus’ Optik TV packages range from $75 to $80 per month. Telus' Optik TV is available on a basic bundle package for $26 per month, he said. “Our most popular is one of the highest tiers, which is called Your Pick HD,” Goodwin said, which costs about $78 per month. Peter Bissonnette, president of Shaw, said in an interview that the company does not intend to follow Telus' subsidy of free set-top boxes or Xboxes. “It’s not the end all and be all, getting free equipment,” Bissonnette said. “It’s actually how you support the services you provide on those devices.” Bissonnette said that, through the Gateway box which provides high-speed Ethernet ports, 50 Mbps is a normal Internet speed, allowing customers to seamlessly run several services at once. “The interaction between our telephone, our video and our television services never changes,” he said. “Whereas with the competitor, if you’re watching your TV, it can have an impact on the quality of your Internet.” Bissonnette said slowdowns occur because users of Telus' service can transmit only so much data at once. The Gateway product also enables the connection of six televisions and up to six simultaneous program recordings while three are being played back, Bissonnette said. Ghose said that, for now, Optik’s remote PVR functionality secures an advantage for Telus. “It doesn’t currently offer remote PVR functionalities,” Ghose said. “So they may be slowly getting there, but clearly, it’s not there yet.” Ghose added that he assumes most customers will opt for a virtually free box from Telus if they have to pay for an inferior box from Shaw. Telus also has an advantage through its use of Microsoft's Media Room IPTV technology, which has a better global support system with approximately 9 or 10 million customers worldwide, he said. “The cost of the box, I assume, is significantly higher than Telus boxes because of a lack of economies of scale,” he said. Greg MacDonald, an analyst with Macquarie Securities, agreed in an interview that Shaw should subsidize its product to become viable against one that is fully subsidized. “As it is right now, if they are subsidizing this box, I think they would have a little bit more success in pushing it into their subscriber base,” he said. But MacDonald said Shaw’s Gateway service is very competitive. “The user interface, or what is often called the guide, is a lot more user friendly,” he said. “It’s a lot more appealing visually, and it’s a lot more flexible relative to what the historical set-top cable guide has been.” In a release, Shaw said some features coming to its Gateway service will include remote PVR scheduling from the Internet and handheld devices, access to the Internet through the television, a customized weather and news “ticker feed,” and integration of social media. Bissonnette said Shaw’s Internet speed and the quality of its HD channels will remain the Gateway’s strongest attributes. “We don’t believe that giving away equipment is necessarily the right way to satisfy customer needs,” he said, “because ultimately, you still have the substance of the service, which is the quality of the service and you also have the follow-up support to that service, which is what we are known for.” Approximately 50 or 60 per cent of customers who buy PVRs from Shaw want to stay with the company, largely because of its Internet speeds and picture quality, he said. dgrenier@thewirereport.ca

Shaw needs better promotions to draw new TV subscriptions, analysts say

Broadcast | October 12, 2011

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