Shomi stand-alone proposal could be financially feasible: analyst

At some point this summer, Rogers Communications Inc. and Shaw Communications Inc.’s Shomi streaming service will be made available to customers of other TV and Internet service providers (ISPs), expanding its user base beyond Rogers and Shaw subscribers. Shomi senior vice-president and general manager David Asch said Wednesday in a phone interview that Shomi would be available to all Canadians with an Internet connection on an over-the-top (OTT) basis. The set-top box version of the service is currently only available to Shaw and Rogers customers, but the company is negotiating with other TV providers and ISPs who want to make the service available to their customers, he added. Its price will stay the same at $8.99. “I want to make my service available to all of Canada, and this is the easiest way to do this,” Asch said. Troy Crandall, a telecom analyst with 3Macs, said in a phone interview that Shomi could be feasible as a stand-alone service at that price, which is the same price charged by Netflix Inc. “If Netflix can offer that stuff at a similar price, then probably Rogers can too,” he said, adding that Shomi’s content costs might actually be lower because of its higher rate of Canadian content, which tends to be cheaper. “I could see it happening with Shomi … especially if they expand their user base,” he said. Analysts have questioned whether Shomi and CraveTV could continue to operate if the companies were forced to offer the services on their own. Canaccord Genuity analyst Dvai Ghose said the services could be pulled in that case, since they “do not appear to be profitable as standalone services at this time and are aimed at overall broadband and TV customer retention.” Kevin Crull, during his time as Bell Media president, stated that BCE Inc.’s CraveTV, which is priced at $4, “is not a stand-alone, make-money value proposition.” Crandall said he doesn’t see how CraveTV’s model “could work at that price” if the service was available to everyone. When asked whether Bell Media will make a similar move in opening up access to CraveTV, spokesman Scott Henderson said in an email that “while we are always evaluating our business model in the context of a rapidly changing industry, we remain pleased with CraveTV’s performance. We continue to have positive discussions that will result in the service being made available to even more TV subscribers across the country.” In an email Wednesday, Drew McReynolds, analyst for RBC Dominion Securities, said that “it will take time before these OTT services become profitable. In the meantime, these services carry more strategic value than anything else in that the industry is ultimately not going to let Netflix have the OTT space in Canada to itself.” He noted the companies behind Shomi and Crave have decided on different approaches, making Shomi “available to all Canadians in hopes of scaling the service, even if it means cannibalizing its own TV subscribers,” while Bell is restricting CraveTV to subscribers of traditional TV services, “in hopes of enhancing/protecting the traditional TV ecosystem.” “Both approaches carry opportunities and risks but at the end of the day, strategically, it is good to see the Canadian operators in the OTT space,” McReynolds added. Asch did not offer details on the reasoning or strategy behind the move to make Shomi available to everyone. “I don’t really comment on our financials. I’ve mentioned in terms of subscriber numbers, we’ve been really happy,” he said. He stated only that the company has a “business plan,” and declined to offer details about the plan, or to elaborate how expanding Shomi’s reach would affect the service or the companies behind it. “We’re in the business of providing content, providing entertainment to subscribers, so adding more subscribers to that base, at least to us, is a good thing,” he said. “Giving people access to more entertainment is a good thing.” Crandall said that at $8.99, Shomi and Netflix can coexist in the Canadian market. Rogers Communications Inc. CEO Guy Laurence said in the fall that Shomi is meant to be complementary to Netflix. Asch also said that though Netflix is a competitor, “people will have different services, in some cases multiple services, and I want to be one of them." Broadcasting consultant Kelly Lynne Ashton noted in phone interview that Shomi has content that isn’t available through the traditional TV system in Canada. That includes shows like iZombie and Transparent, which aren’t broadcast on traditional TV in Canada. She said people will be drawn to Shomi for the same reasons they are to Netflix, “when there’s nothing on television, and you’re looking for an alternative.” “People go to Netflix when they hear about the exclusive content on there that you can’t see anywhere else. You know, when you hear about The House of Cards, for example. So if Shomi has enough of those kinds of shows that will attract an audience so they’ll give that 30-day free trial a try,” she added. The CRTC is currently considering a complaint against Shomi, which was brought forward by the Public Interest Advocacy Centre (PIAC). It argues that by tying access to Shomi with Rogers or Shaw Internet or TV subscriptions, the companies are conferring an undue preference on their own services and discriminating against independent providers. Geoffrey White, external counsel for PIAC, said in an email that “PIAC would like to see if there are any restrictions in terms of eligibility requirements,” and that the group would still like the CRTC to rule on the case even if the service is available to everyone unconditionally. “Otherwise, if the file is dropped, this would be just another example of companies playing ‘catch me if you can’ before the regulator,” he said, giving the example of Rogers changing the pricing of data used by its Anyplace TV app and cancelling its Rogers Next program following PIAC complaints. “A ruling is necessary for the sake of clarity and the specific issues raised relating to anti-competitive preferential dealing under both the telecom and broadcasting statues. Also, the fact remains that Shomi took a many months-long head start here, and it will be interesting to see if any unaffiliated competitors have anything to say about that particular issue," White added. PIAC sent a letter to the CRTC Wednesday, telling the commission that its complaint remains unchanged. The deadline for interventions in that process is June 1. In March, the CRTC introduced a new category for video-on-demand (VOD) services, which allows them to offer content exclusive to some TV service providers and operate under the digital-media exemption order, as long as they also offer that content online to all Canadians. What that means for Shomi and CraveTV was still unclear following the late April deadline for comments on the proposal. On Wednesday, Asch declined to answer whether Shomi will operate under the CRTC’s proposed new hybrid model for streaming services. Peter Miller, a communications lawyer and broadcasting consultant, said in a phone interview that “the fact that they’re not immediately saying ‘yes, we’re operating under the hybrid’… is kind of curious. Because if they were truly providing it to every Canadian regardless of what ISP Canadians subscribe to, then my understanding is that they would be eligible for the hybrid exemption order.” He added: “And of course, the advantage to them is, once they do that is they have no regulatory obligations whatsoever in terms of content. So it sounds to me like we may still be in a bit of a grey area where they’re still trying to figure out what they’re doing.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Shruti Shekar at sshekar@thewirereport.ca

Shomi stand-alone proposal could be financially feasible: analyst

News | May 27, 2015

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