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New media, new television sets, new business model

Samsung 3-D televisons are displayed in a room with a mirrored ceiling at the 2010 International Consumer Electronics Show

Justin Sullivan/2010 Getty Images

It has become an annual tradition: As soon as the holidays are over, the tech community descends on Las Vegas to conjure the Ghosts of Gadgets Yet To Come.

Sin City's sprawling Consumer Electronics Show offers a peek at the newest devices vying for your dollar, and every year, something emerges as the main attraction. One of this year's stars was the Web-enabled television set. Every major company that makes televisions, including Sony, Samsung and Toshiba, has been rolling out screens that connect not just to a cable or satellite box, but directly to the Internet. This will change the way you think about TV, and broadcasting companies are taking notice.

The option to watch television through the Internet has been around for a while, but it has required some patience or expertise with technology. However viewers located a show - by paying Apple for it, streaming it from legitimate or not-so-legitimate websites, or downloading it illegally - they had to be willing either to watch it on a computer screen or jury-rig a connection from a laptop to the TV.

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It wasn't much of an incentive to cancel the cable subscription, and very few people have. Specialty channels, which earn money through advertising and by charging to cable and satellite providers a monthly fee per subscriber, collected roughly $1.4-billion in subscriber revenues in 2009, an increase of almost 7 per cent from the year before, according to CRTC numbers.

But as the Web begins to come to the television more seamlessly, media companies face far more competition from online services (also called "over-the-top" services) that don't come through a cable TV or satellite feed, but feel an awful lot like simply watching television.

Last year, Netflix launched its online streaming service in Canada, which can be fed directly to a TV, thanks to partnerships with more than 200 device manufacturers. Xbox or PlayStation consoles are no longer just for games; they have been delivery systems for online video for some time, and the Netflix partnership only increases ease of access. Meanwhile, Apple revamped its Apple TV, a device that plugs into your set and beams video you've bought through iTunes from your computer to the bigger screen. Google is set to bring its own TV product to Canada this year.

And those Web-connected TVs, many of which will work with the Google platform, are beginning to sell, despite their higher price tag. As of last month, these "smart" TVs represented 12 per cent of all flat-panel television sales in Canada, according to NPD Group Inc., twice as much as last year.

The migration of consumers to these services "is not going to happen overnight. There are a ton of customers that are fine right now [with cable or satellite]" said Mike McGuire, a media analyst with Gartner Inc. "But all it takes is exposing somebody to something like Hulu [a popular U.S. television site]or Netflix, where the light bulbs start to go off. They start thinking, 'Wait a minute, maybe there's another way for me to get this content.' "

TV everywhere

This evolution is already changing the way media companies are doing business - and was a motivating factor behind a massive shift in ownership in Canadian broadcasting, with Shaw Communications Inc. buying the television assets of CanWest Global last year and BCE Inc. acquiring CTV Inc. (The latter deal goes before the broadcast regulator for approval in slightly more than a week.)

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But even broadcasters who aren't directly tied to a major TV distributor have a symbiotic relationship with them. Companies like Toronto-based Corus Entertainment Inc., owner of such properties as W Network, and Montreal-based Astral Media Inc., owner of ad-free pay-TV channel The Movie Network, have a real incentive to keep viewers within the traditional TV ecosystem.

To do that, the cable and satellite companies have adopted the U.S. industry's strategy, dubbed "TV Everywhere." Rogers, Shaw, Vidéotron and BCE's Bell Canada unit have all rolled out online on-demand services that let viewers watch shows any time they want, on any screen. The catch is they have to have a password to prove they pay for the TV service to get the Web video. The broadcasters play along.

"We've made our libraries available to them. We're advocating among our programming colleagues to work with television providers to provide a good experience on broadband and mobile … to ensure we keep people within the system," said Corus Chief Executive Officer John Cassaday.

Analysts say they wouldn't be surprised to see the walls go up even higher. Conventional broadcasters such as CTV have also put some shows online at no charge. But the Web isn't where the money is: The television ad market in Canada is still worth nearly $3-billion, while video advertising online is closer to $100-million. Sites like could soon require a password, too, further restricting what's available over the Web.

"We think there should be some kind of authentication model for [broadcaster websites]as well. That could be adapted," said Peter Bissonnette, the president of Shaw, which closed the CanWest Global transaction in October.

Consolidation has had the opposite effect in the U.S. Cable giant Comcast Corp. received approval this week to buy NBC Universal, the large U.S. broadcasting and film company. But regulators imposed some stiff conditions, such as ordering that Comcast would not be allowed to protect its cable business by refusing to negotiate deals with over-the-top competitors like Netflix.

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Nothing like that has happened in Canada. To ease the approval of its purchase of the CanWest TV assets, Shaw promised not to restrict rival cable and satellite companies from accessing its content, but said nothing about co-operating with Netflix. The regulator may not want to push the issue: The Canadian content the CRTC promotes exists only because broadcasters and distributors are required to pay into the system and put Canadian shows on the air. Over-the-top services do neither.

And since Shaw, Rogers and others also own the lines through which high-speed Internet services are sold - and because they charge extra for heavy users of bandwidth - they're likely to be paid even by those rare consumers who use only over-the-top services.

"Consumers may be hoping, I can get content deeply discounted or free online, and cut my cable cord. But … the cable companies or the telecoms are going to have to recover the cost," said Mike Paterson, a media analyst with PricewaterhouseCoopers. That could mean data charges, or giving users an incentive to keep their subscriptions.

The risk

Most analysts argue that doom and gloom for TV broadcasters is unwarranted, at least for now. But the growing appeal and availability of over-the-top does pose risks. For one, over-the-top is far cheaper, a powerful incentive for consumers.

It's also not as good - Netflix's selection is slim, but it's working to build out content. In the States, where the service is more robust, Netflix TV and movie viewing online accounts for more than one-fifth of Internet traffic from 8 p.m. to 10 p.m. And the majority of the most popular TV shows in Canada are still American. Canadian broadcasters go to Hollywood every year to buy the rights to distribute those shows within Canada, but broadcasters such as CTV and Global don't always get exclusive digital rights.

Because of that, even newer content is hard to control in the digital world. If you missed a new episode of The Big Bang Theory on CTV, for instance, you could pay Apple for a downloaded version on the same day it aired. At $2.49 a pop, the price is likely still prohibitive for heavy viewers, but if iTunes rolls out TV rentals in Canada (in the U.S., they're 99 cents per episode), Apple TV could be a viable alternative.

In a report released this week, Scotia Capital analysts Jeff Fan and Paul Steep contend that, now that the broadcasters are owned by deep-pocketed cable and satellite companies, they will try to lock up more exclusivity in digital rights. It will cost them more, but if it means keeping online viewing as a complement, and not a competitor to TV, it may be a price the industry is willing to pay.

With a file from reporter Iain Marlow

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