Rogers killing of in-house IPTV good move in long term, analysts say

Rogers Communications Inc. has abandoned the development of its own IPTV platform and will instead launch an IPTV service using a platform from Comcast Corp., a plan analysts said Friday would benefit BCE Inc. in the short term but is a good decision for Rogers down the road. The company announced on Friday a partnership with Comcast that will see it deploy the United States cableco’s “X1 IP-based video platform” in early 2018. The change in strategy will cost Rogers between $475 million and $525 million. “Rogers decided to move to a hosted platform to ensure it has access to the scale and technical roadmap needed to meet the ongoing pace of IPTV innovation,” it said in a press release. “In addition, Rogers customers will benefit from the substantial research and development investments Comcast has made to date and the company's continuing commitment to innovation.” Before the announcement, the company was far enough along in developing the project to hold a demonstration for investors in June and planned to have the IPTV rollout completed by the end of 2016. In a research note Friday, Canaccord Genuity analyst Aravinda Galappatthige wrote that though “the company did not indicate the reasons for abandoning the programme at this late stage, we suspect the management change (i.e. exit of CEO) may also have triggered a revisit of the risk-return assessment for the project.” Rogers planned to develop the IPTV platform while former CEO Guy Laurence, who unexpectedly left in October, was heading the company. Galappatthige said that in developing its own platform, Rogers “appeared to be running into various challenges, we suspect on the technical front as the launch timeline was delayed several times.” Rogers isn’t the first Canadian cable company to begin developing its own IPTV platform and then change its mind. Shaw Communications Inc., which also opted for Comcast’s platform, did so in 2015, following a similar move by Cogeco Inc. in 2014, though the write-downs those companies took as a result — $55 million and $32.2 million, respectively — were a fraction of that announced by Rogers Friday. The $475 million to $525 million write-off is “substantial,” Galappatthige added, and “would have a negative impact on the market's confidence with respect to Rogers ability to execute on its initiatives, particularly on the back of the write-off of ,” the streaming service it ran jointly with Shaw that shut down at the end of November. The new strategy also means Rogers rival Bell will “continue to have a superior TV product at least until 2018,” he said. Still, Galappatthige said opting for Comcast’s platform is the “safer bet” for Rogers in the longer term. Desjardins Capital Markets analyst Maher Yaghi agreed, writing in a note the decision is “actually a better solution for the long term, given that the costs to not just develop but maintain and upgrade the system should now be spread over multiple users rather than being borne by Rogers alone if it had launched a proprietary IPTV product.” National Bank Financial analyst Adam Shine pointed out that given Rogers having its own IPTV platform was a “key project of prior CEO Guy Laurence, its future was inevitably compromised following Mr. Laurence’s departure. One wondered how and why the build approach would prove better than the scale and technical roadmap offered by X1. It obviously didn’t.” He also pointed out Bell stands to benefit from the delayed launch of Rogers IPTV, writing in a note that “its delayed rollout of IPTV service by a year will temporarily ease some of the greater pressure on Bell that otherwise would have ensued.” Barclays analyst Phillip Huang said Friday’s announcement “is the right move for Rogers because: 1) it significantly lowers execution risk by ensuring Rogers access to the scale and technical roadmap required to meet the ongoing pace of IPTV innovation; and 2) improves visibility to capex given X1 is largely a ‘plug-and-play’ product with likely minimal in-house development required.” Still, he added in a note that how the cost of licensing from Comcast will affect profits in Rogers’ cable division still isn’t clear. Huang also said there is some uncertainly about the company’s strategy over the next few quarters, given there is still no specific start date for Laurence’s replacement, Joe Natale, which could mean “increased perceived probability of changes to management teams execution.” While all four of those analysts pointed to some short-term benefit to Bell, RBC Capital Markets analyst Drew McReynolds said he viewed the move as largely neutral for Bell, predicting the delay would be “mitigated by what will likely be a more rapid pace of deployment come 2018.” He added that it’s “slightly positive for Shaw in that X1 adoption by both Rogers and Shaw arguably makes a potential Rogers-Shaw merger more complimentary (all else being equal).” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Charelle Evelyn at cevelyn@thewirereport.ca

Rogers killing of in-house IPTV good move in long term, analysts say

News | 12/16/2016 8:33 pm EST

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