Get big or get cut new TV mantra
National Post
John Cassaday, president and CEO of Corus Entertainment Inc., says traditional television is facing new competition from online distributors such as Apple TV and Netflix and his strategy to stay on top is to go big and acquire content
Photograph by: Tyler Anderson/National Post, Tyler Anderson/National Post
With glass-walled rooms, studded with flat-screen monitors and overlooking sophisticated control stations, Corus Entertainment Inc.’s luxurious new headquarters quickly remind one that old-fashioned television remains a very profitable force.
But there is also no doubt, says John Cassaday, the firm’s chief executive, that the world is changing. “The single biggest issue we have as an industry right now is cord-cutting — the fear that studios will bypass the traditional and go ‘over-the-top,’ deploying through the likes of Google, Netflix and other providers that will emerge over time,” he says.
Though still very much a niche service, the growth in “over-the-top” TV — so-called because content is provided through the Internet over a local provider’s network — has some media and TV distributors in Canada concerned, if not alarmed.
Apple Inc., Google Inc. and Netflix Inc. have redoubled efforts this year to acquire TV content rights they can sell over the Web.
In doing so, Mr. Cassaday warns that the traditional model that Corus, as well as distributors like Shaw Communications Inc. and Rogers Communications Inc. have made billions from, lies in danger of being broken up.
His solution: Get big.
Much more than a symbol of Corus’s success, its new $225-million building overlooking Toronto’s waterfront is a collection of high-tech war chambers to provide specialty channel and conventional programming on a multitude of digital and traditional platforms in order to keep subscribers and advertisers from straying.
It is a war that Corus, which posted a healthy $31.5-million profit last quarter while growing revenues 12%, continues to win. But as other players gird through consolidation, it is one that his media firm cannot win alone, he suggested in an interview this week.
In May, Shaw TV struck a deal to acquire Canwest Global Communications Corp.’s television operations, a move that was repeated last month in BCE Inc.’s bid for CTV Inc.
The deals are the end-game of a process the broadcast executive has seen coming. “We’ve been predicting for many years that the CTV assets or the Canwest assets would ultimately end up being aggregated under the umbrella of the distributors. It is the only rational way to exploit all of the rights that are available in this digital world,” he said.
Mark Goldberg, principal at consultancy Mark H. Goldberg & Associates Inc., has also seen this trend on the horizon. A major rationale among the current consolidation craze is access to programming across digital and mobile platforms — mediums where consumers are increasingly consuming content.
At hearings last month, Shaw executives said the “expertise” its Canwest deal will give it in bargaining for rights with Walt Disney Co. and other studios for prime-time shows, can likewise be tapped to win digital rights.
“Instead of coming in as purely a broadcaster or Internet company asking for one set, you can make use of all of the rights,” Mr. Goldberg says. “They come in with negotiating power.”
But the deals are about economies of scale — Canwest will add $1-billion to Shaw’s top line, which was $3.4-billion last year. That’s a fraction of what firms in Cupertino and Mountain View, Calif., have, but well ahead of the revenues of Netflix, a firm aggressively going after digital rights and sees Canada as a key expansion market.
One day soon, Canadian distributors-cum-broadcasters will compete with Netflix and others, Mr. Cassaday says, and size will matter.
Corus is one of only two major television firms in Canada that remain outside a distributor. The other is Astral Media Inc., which owns channels like The Movie Network and Family.
John Riley, president of Astral television, supports Mr. Cassaday’s call for consolidation, so long as it “is achieved in a way that is fair and maintains a strong indigenous system,” he stated in an email response.
“We need the attention of Nickelodeon, Warner Brothers, Sony, Disney,” Mr. Cassaday says. “And the only way we’re going to do that is if we’re big enough that we can acquire enough content so we don’t become a rounding error in Los Angeles or New York.”
For that reason Mr. Cassaday put forth the idea of Corus once again being wrapped into Shaw, which spun the media firm out a decade ago but remains controlled by the Shaw family.
“[The] obvious option would be at some point, there is some move made to consolidate the assets,” he said.
Shaw the cable company dismissed the idea of a re-merger at hearings with regulators who must approve the bid. But its executives repeatedly defended the $2-billion Canwest deal as a means to guard access to content from the Googles, Apple TVs and Netflixes of the world.
“Vertical integration is critical to competing,” Brad Shaw, executive vice-president, told CRTC commissioners.
“For the time being, program rights-holders still see greater value in licensing exclusive foreign rights. We cannot rely on this indefinitely. When rights-holders find it more profitable to reach consumers directly, they may well stop licensing ... territorial rights to Canadian broadcasters and [cable/satellite distributors],” he said.
There are some raised eyebrows about the arguments Shaw and Corus are making, not least because of their shared history.
Despite deals with Fox and other producers this year, Apple TV is a marginal threat, while Google has yet to even launch its interactive TV platform.
The alarm is being sounded to spook regulators into rubber-stamping Shaw’s bid, said sources who asked not to be named.
Greg MacDonald, National Bank Financial analyst, stresses the limits of over-the-top products at present. “They have no sports and limited prime-time content, including movies. They have popular programming, but it is delayed distribution. So the product only really appeals to the casual TV watcher,” he said of Netflix.
The warnings also come as demand for cable, satellite and IP-television products is actually accelerating, not slowing. In 2009, 240,000 new customers were added across the industry, according to Convergence Consulting Group. Growth this year is expected to hover around the same total as last year and the numbers will continue to increase in 2011 and 2012, when an estimated one million Canadians tuning into analog over-the-air TV will be up for grabs once the switch to digital distribution is complete.
In short, cord-cutting is near nonexistent in Canada, says Brahm Eiley, principal at the Toronto-based research firm.
But the trend is appearing in the United States. About a million homes, or 1% of U.S. households, have dropped their TV subscription through mid-2010, according to Convergence. That is up from 0.6% by the end of 2009.
U.S. subscriber growth continued through 2009, yet it was lifted almost entirely by that country’s digital switch — a one-time event. Growth this year is expected to decline.
“The U.S. industry is not adding subscribers the way it used to,” Mr. Eiley said.
And that is direct reflection of consumers going entirely online.
Financial Post
jasturgeon@nationalpost.com
