HBO could launch today as OTT. Where does that put BCE’s TV Everywhere strategy?

BCE Inc., the country's largest converged media and telecom company, finally acquired Astral Media Inc. and its “must have” pay service TMN last month, after the CRTC gave its blessing to the $3.38-billion deal. The companies said the transaction, which would give BCE ownership of Astral's TMN pay service with HBO content, was largely about having the scale to compete with online, foreign-owned, over-the-top competitors like Netflix Inc. “OTT competition has only intensified since we were last before you,” former Astral chief executive Ian Greenberg told CRTC commissioners at a hearing in Montreal on May 6, adding that he estimated Netflix has grown its Canadian subscriber base to just under two million. “Netflix is just one prominent example of the kind of scale being brought to bear on Canada's industry, challenges to our business that we believe we must meet head-on by expanding our own scope and scale. That's what this transaction enables,” he said. It's hard to know BCE's long-term plans to compete online (the company declined to comment for this story, saying it's too early to talk about strategy). Unknowns include how the $3.38-billion acquisition will pay off, especially as content moves online, into an unregulated space that doesn't require broadcast distribution platforms like cable, satellite, or IPTV. Astral (now Bell Media) has extensive Canadian rights deals with major studios in the United States, chief among them Time Warner Inc.'s HBO, and as demand for content shifts online over the long-term, one of the biggest questions for BCE is whether Time Warner will decide to launch its HBO Go service as a standalone, online service like Netflix. “Ultimately, all in all, yeah,” said Mike McGuire, an analyst with Gartner in California, when asked whether a standalone HBO Go service is inevitable over the long-term. “The challenge is picking the point in time.” HBO Go—which is now only available for TV viewers who subscribe to HBO through their television provider—could emerge as a competitive threat to BCE's plans, McGuire said. “I would think they might be a little concerned if HBO chose to go over-the-top, so to speak, with an a la carte app,” he said. The analyst said HBO could be successful as an over-the-top service at the right price point. It's when the service costs more than $10 per month that users will start to question its value, he added. If the company's service in Scandinavia, called HBO Nordic, is any indication, HBO may be already looking at a standalone, over-the-top product. Last summer, HBO launched as an online website and app service in Sweden, Norway, Finland and Denmark. The service costs 129 kroner ($22) per month, or for a 12-month term, 79 kroner ($13.50) per month, according to its website. TimeWarner, for now, says it has no plans to launch HBO Go as a standalone service. HBO chief executive Richard Pepler said as much in March, at a Game of Thrones premiere in San Francisco, The Los Angeles Times reported on March 28. “We always talk about variations on a theme,” Pepler said, according to the LA Times. "Maybe HBO Go, with our partners as broadband-only, could evolve some day, but not tomorrow. Right now, we are very excited about the enthusiasm around Go, the way our customers are embracing it. For right now, we have the right model.” HBO, which offers some of the highest demand content on television, now does too much of its business with TV providers to walk away from that and go online, McGuire said. Canadian TV providers charge customers about $18 to $20 per month for the TMN pay service, which includes movie channels and HBO Canada, and pay about a $9 to $10 monthly wholesale fee per customer to carry the channel, industry sources told The Wire Report on a background basis. If HBO is secretly planning to launch HBO as an over-the-top service, BCE—and, for that matter, Shaw Communications Inc., which has the Western Canada rights to a similar service called Movie Central—could simply say good luck, end the relationship, and focus on sports content, McGuire said. In response to over-the-top competition, McGuire said he expects many TV providers to “double down” on sports rights, where there tends to be more demand, and as a result, more money. That tactic would be in line with Bell Media's plans to stream next year's Super Bowl behind a paywall for subscribers only. Even that approach may have its failings, he said, as professional sports leagues may some day go over the top: leagues are already evaluating whether they can make more revenue distributing their content through an app or channel online. “There's this very interesting, multi-level chess game, because the more advanced sports leagues are looking at the same thing: 'Can we start making more money off direct payment ?'” McGuire said. Over-the-top television, as a distribution platform, is established, he said. The issue now is what happens to licensing relationships between studios and broadcast distributors around the world. “The delivery part of it is settled. Now, it's about licensing and rights,” McGuire said. “People tend to get caught up in the technology discussion, but the really interesting stuff is what's going to be happening between the lawyers, and the programming and licensing people.” Kelly Lynne Ashton, an independent media consultant in Toronto, said BCE, not to mention other large media players like Shaw, Rogers Communications Inc., and Quebecor Media Inc., need to do a better job of following consumers as opposed to trying to draw them back into “walled gardens” and traditional TV systems. BCE's acquisition of Astral will give the company a catalogue and experience in an important genre, she said, which will “help fill out their own over-the-top offering.” Still, the future is going be difficult for all of the providers, she said. “The part they really need to work out is how to grab their audience where their audience wants to go, rather than thinking about pulling their audience to where they want them to be,” she said. BCE and other TV providers in Canada can develop more competitive services by building more innovative and user friendly platforms, she suggested. “People go to Netflix because of the recommendation engine,” Ashton said. “The big players like Bell and Shaw and Rogers have got to figure out how to curate the content and get it to people where they want to be. TMN is a big part of that puzzle, but there's a lot more thinking they have to do about putting the consumer first.” In other words, she recommends that they use technology and the Internet to become more innovative and inclusive aggregators of content and channels. The problem is that good curation and aggregation in the media world tends to be the purview of technology giants like Google Inc. and Apple Inc., which already have their toes in the television content delivery business, at least online. In the United States, Google has been approaching media companies and studios about licensing their content for a new subscription TV service that would go “over the top” of traditional TV, according to a report this week in The Wall Street Journal, while Apple has been trying to make similar licensing arrangements. As more television viewers move online, TV providers, most of which also offer Internet service, will have to consider making their TV everywhere applications available to Internet subscribers, as opposed to only television subscribers, to truly compete with OTT. There's another wild card in BCE's acquisition of Astral. This fall, the CRTC will launch a broad review of its policies for the TV sector, first consulting with the public and then with industry. Canada's media sector hasn't yet seen the questions that will be asked, but the review is expected to be wide-ranging, looking at issues from packaging to pick-and-pay and on-demand options. In 2011, the CRTC held a consultation on over-the-top TV services and did not conclude there was any need for regulation. It instead opened a “watching brief” on the issue. “I think there's a lot of variables right now. The CRTC that we've known for many years has changed. They seem much more willing to enforce regulations,” Ashton said, referring to the regulator's more consumer-oriented approach under Chairman Jean-Pierre Blais. “If I was a BDU and a broadcaster, I'd be thinking carefully about the rules and trying to not skirt around the rules.” —With reporting by Simon Doyle at sdoyle@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

HBO could launch today as OTT. Where does that put BCE’s TV Everywhere strategy?

Broadcast | July 17, 2013

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