Netflix Inc. may have won the initial battle for online viewers in Canada, but the company's chief executive officer says it must now survive an onslaught from the country's traditional television companies who are scrambling to get their own video-streaming products to market.
Reed Hastings said the company is prepared to aggressively bid for movie and television rights in this country while earmarking increasingly higher amounts to produce original content to entice viewers into cutting their cords. His remarks come as Rogers Communications Inc. puts the finishing touches on a product intended to compete online with Netflix, and BCE Inc. looks to spend $3-billion to acquire Astral Media to keep the U.S. competitor at bay.
"Linear television has been very successful ... but it's ripe for replacement," Mr. Hastings said in an interview. "They are now realizing they have good content and that they need to make it on-demand and convenient to access. They are a few years late, but that won't matter in the long term. What will matter is if they can get in there and really improve the television experience."
Canadian television providers are only now waking up to the threat posed by online services such as California-based Netflix, which offer viewers low-cost packages and the ability to watch shows whenever they like. They are developing their own subscription-based products, and also making their traditional packages more flexible for their subscribers.
The number of subscribers to traditional television services continues to increase in Canada, but the rate of growth has slowed considerably and is expected to begin declining within a few years as more viewers turn to alternatives for their content.
About 12 million Canadian households subscribe to traditional television packages, compared with two million for Netflix. But Netflix is on a different trajectory, doubling its number of subscribers in the past year as it bulks up on content and introduces original shows such as Hemlock Grove and House of Cards.
Rogers vice-president of digital television products David Purdy said last week that the company will offer a paid subscription product that would operate separately from its cable television business, adding "it's my belief that all major [broadcasters] will roll out a Netflix competitor."
Quebec-based Vidéotron Ltée recently launched its answer to Netflix, a French-language subscription video service that is available in its home province and Ontario but could be expanded into other markets if there is adequate demand.
BCE, meanwhile, told the Canadian Radio-television and Telecommunications Commission last week during a hearing into its acquisition of Astral Media that the companies needed to combine their resources if they had any hope of acquiring shows (and online rights) for channels such as The Movie Network.
Competition for online rights – once an afterthought when negotiating with the companies that produce and sell movies and television shows – is intensifying as new services look to offer viewers broad libraries of content. Last week, for example, Google launched 30 pay channels on its YouTube service that allow rights holders to sell their content directly to consumers rather than access it through traditional providers.
"The headlines are ominous about our industry," said Bell Media president Kevin Crull. "Netflix streamed four billion hours in April. Google's YouTube says the battle with TV is already over and TV lost. Intel expects to launch a virtual cable service by year-end. These trends are rocking the foundation of our industry."
Netflix isn't willing to take the crown from cable just yet. The company has insisted it is a complementary service to traditional television, but as more cable companies adopt its business model, it needs to start adopting theirs by producing original content to ensure it has something unique to differentiate itself.
"We don't just want to licence we want to develop and build and look more like a television network," said Mr. Hastings, whose company posted a $19-million profit in the last quarter. "We have to stay on our toes – it would be tragic for us to be Netscape and invent a model and then get run over by the big guys."