Canadian television providers are planning to cut their own cords, with several of the country's largest media companies developing subscription-based services to compete with online rivals such as Netflix Inc.
The streaming video service – which now has close to two million Canadian subscribers paying $7.99 a month for access – is facing intensifying competition in the United States by well-funded cable and technology companies that are trying to replicate Netflix's success by offering popular titles over the Internet for a low cost.
But that competition has been slow to materialize in Canada, which has helped Netflix almost double its number of subscribers here in the last year.
That's about to change: Rogers Communications Inc. is developing a service that would give subscribers access to movies and television shows and is also considering developing television series solely for digital distribution to enhance the product's appeal.
The product could compete with similar offerings from companies such as Bell Media and Videotron, which has already developed and marketed a French-language Netflix alternative available in Quebec and Ontario.
The companies don't intend to get out of traditional television, which is a key driver of profits with 12 million Canadian households paying for some level of service. But they want to sign up former subscribers who have opted out of traditional subscription packages while at the same time reinventing themselves for a more digital future.
"It's my belief that all major [broadcasters] will roll out a Netflix competitor," said David Purdy, vice-president of digital television products at Rogers. "It's a common strategy to try and figure out how to roll out products that allow viewers to binge watch and to offer all-you-can-eat movie services."
In the United States, a handful of companies are looking to steal business from Netflix with their own offerings. Amazon.com has launched a video-streaming service, joining television and telecommunications powerhouses such as Comcast and Verizon. There is speculation that as more competitors fight to secure rights to online programming, the price of such services will increase exponentially and make it more difficult for low-cost offerings such as Netflix to compete.
"Our underlying fundamental thesis is there will be more than one Internet TV competitor," Evercore analyst Alan Gould said. "Internet TV is growing rapidly and Netflix is the clear leader in the market; however, we are highly skeptical of Netflix reaching even the low end of the 60-90 million subscribers that management has projected [worldwide]."
Netflix had no comment.
Rogers already offers its cable subscribers online access to much of its programming. But it wants to develop a separate product that would allow those who don't subscribe to its cable package to pay for vast collections of movies and archived seasons of popular television shows. It could compete with Netflix to buy Canadian rights in some cases, or share rights when Netflix isn't the exclusive carrier.
Companies such as BCE Inc., Rogers and Videotron are particularly well suited to launch services because they also own television stations, making it easier for them to access exclusive content online.
Mr. Purdy spoke about the project in the midst of hearings into BCE's $3-billion purchase of Astral Media Inc. Executives from both BCE and Astral argued to the Canadian Radio-television and Telecommunications Commission that the deal was necessary for the companies to compete with so called "over-the-top" providers such as Netflix.
Cord cutting – in which customers cancel their subscription in favour of online alternatives – is increasing in Canada, but is still in its infancy compared to countries such as the United States. But the cable and satellite companies are increasingly concerned that customers will find content elsewhere, and they want to develop their own alternatives before customers can walk away and spend their money with a competitor.
The companies argue that Canadian companies must be able to compete, because a portion of the money they generate from subscribers goes back to Canadian productions. BCE has previously said it intended to develop a Canadian Netflix, but needs to buy Astral to make it happen.
"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," said Astral chief executive officer Ian Greenberg. "That's what this transaction enables."
Join the conversation
On Twitter: Follow us at @CanadaCompetes.
On Linked In: Be involved in a broad discussion on Canada's future on the Conversations for Change page: tinyurl.com/czz9koq