Cable and satellite companies, already dealing with competition for subscribers from companies such as Netflix Inc., have a new threat to worry about as a handful of technology-heavy startups prepare to launch rival television services at lower prices.
Internet protocol television (IPTV) – which delivers television signals into homes through the Internet over existing network infrastructure – has created an opportunity for a new type of company to get in on the country's $17-billion television distribution industry that is dominated by a few large players such as BCE Inc. and Rogers Communications Inc.
While several small companies have for years considered offering television subscription packages, they have been frustrated by bandwidth caps that make their services too expensive for the average viewer and have had difficulty securing access to the channels that viewers demand be part of any television package.
That's about to change Toronto-based VMedia Inc. has developed technology that compresses signals, reducing the required bandwidth and making its service a viable alternative to traditional cable and satellite packages. It will begin selling subscriptions in the Greater Toronto Area on Wednesday, after two years of planning. Zazeen Inc., another Toronto-based provider, recently began offering its service on a test basis after years of development.
The Canadian Radio-television and Telecommunications Commission has granted about 20 IPTV licences to small companies such as VMedia, it said, but most have small, regional ambitions and only a few are likely to make it to market owing to the barriers they face in securing access to channels and developing the technology needed it to make it into living rooms.
"We learned the hard way how difficult it would be to license content when you are a no-name company," VMedia chief executive officer Alexei Tchernobrivets said.
For the incumbents, the startups represent a new front in the cord-cutting battle that has seen customers move to cheaper online alternatives such as Netflix and iTunes. But the new companies face a host of challenges, including the huge marketing budgets of established players and a lack of trust for new entrants, that could be difficult to overcome.
The companies – mostly centred in Montreal and Toronto – have been working out deals with content providers such as Bell Media and Rogers Media for the past two years, and building the set-top boxes customers will need to subscribe to their services. A few are ready to challenge the incumbents' hold on 11 million households, who pay an average of $50 a month for their subscriptions. (Federal rules require broadcast companies like Bell and Rogers to sell access to their channels, even to rival TV distributors.)
VMedia's packages are identical to traditional subscriptions in most ways – basic packages contain most of the channels as those offered by the cable and satellite companies that have had a lock on the Canadian market for decades, and offer bundles to expand consumer choice.
But they also offer users the ability to use apps on screen – someone sitting at home can access Netflix as easily as TSN, or flip over to YouTube to watch millions of videos on demand. VMedia, which packages its television offering with Internet service, has a set-top box that essentially allows viewers access to any app developed for the Android operating system – from Skype to poker.
Several of Canada's largest television providers – including BCE, Telus Corp. and Vidéotron Ltée – offer IPTV to their customers. The technology allows for a greater range of high-definition offerings, as well as robust video-on-demand services.
But the smaller companies believe they have an advantage, because they are more willing to throw their services open to apps such as Netflix that directly challenge traditional television and they are willing to settle for slimmer margins in order to win business.
"Obviously, we are in this to make a profit," said George Burger, a partner at VMedia. "But we're not trying to grab every last entertainment dollar off the table."
VMedia's basic packages are about 25-per-cent less expensive than their mainstream competitors, a similar rate offered by one of the only other independent companies to offer IPTV in Canada. Montreal's ColbaNet has been selling its package for about a year, but won't disclose subscriber numbers. It offers a package that includes basic television service, Internet and home phone for about $60 a month.
Chief executive officer Joseph Bassili said his biggest challenge is marketing, but he said companies such as his understand they'll never be as large as their rivals.
"It takes money and advertising to obtain new subscribers and nobody will ever have more money than they do," he said. "But I don't need to be bigger than they are to grow very rich."