As Shomi shuts down, experts point to strong competition in OTT

Shomi, the joint Rogers Communications Inc. and Shaw Communications Inc. over-the-top (OTT) video service, will shut down on Nov. 30, the service announced Monday afternoon, in a move some industry experts said wasn’t completely out of the blue. “The business climate and online video marketplace have changed markedly in the last few years,” David Asch, Shomi’s senior vice-president and general manager, said in a press release. “Combined with the fact that the business is more challenging to operate than we expected, we've decided to wind down our operations.” “I guess it was somewhat anticipated; I would’ve thought that they would have kept it going a little bit longer, but I think it was evident that it was starting to ease,” Aravinda Galappatthige, an analyst with Canaccord Genuity, said in a phone interview. “It was just not working out.” Independent consultant Kelly Lynne Ashton also said in a phone interview that there have been some recent indications that Shomi could be shut down, including a Rogers promotion that offered free Netflix Inc. service as part of a bundle, and a lack of new content being added to the service. Shomi entered the OTT market in 2014, first as an add-on service for Rogers and Shaw TV and Internet customers, before opening up to all Canadians in August 2015. Alongside BCE Inc.’s Crave TV, it was meant to counter the American Netflix service. Last month, to mark the one-year anniversary of the service’s wide release, Shomi announced that it had recorded 143 million video plays since that 2015 nation-wide rollout. Like Netflix, Shomi has never released its subscriber data, though third-party surveys indicated that it and Crave TV combined failed to grab a fraction of the OTT market that Netflix enjoyed. In June, a Solutions Research Group Consultants Inc. report suggested four per cent of Canadian households subscribe to Shomi, while a Media Technology Monitor report placed Anglophone subscription at five per cent. The SRG report estimated that 46 per cent of Canadian households had a Netflix subscription. Shomi may have found it difficult to compete, even with its Canadian counterpart, noted Galappatthige. He said that not only is Netflix very strong, but also that CraveTV entered the market at a lower price point, “and then acquired the HBO assets of Corus and started putting that Game of Thrones-like content into Crave, it just became stronger.” While Shomi did have some exclusives, “without really strong exclusive content, you really can’t succeed and towards the end they were just throwing in for free with Rogers wireless,” Galappatthige said. “That wasn’t working out.” Ashton noted Netflix already had a strong presence in the market when Shomi was launched. “They came in really late to an already saturated market. Couldn’t make it work, and now they’re giving up,” she said. “When one player comes in very well financed ahead of the game, it’s going to be very difficult for anyone else to carve out a market unless they can offer an alternative.” In a separate release, Rogers said it expects to “incur a loss on investment of approximately $100-140 million in its third quarter ending September 30, 2016 relating to the carrying value of its investment and a provision related to future liabilities in shomi.” In a research note, RBC Capital Markets’ Drew McReynolds said that Rogers’ and Shaw’s “investment to-date and ongoing operating losses are not overly material.” McReynolds added that “underpinning this decision is likely an uncertain path to sustainable and meaningful profitability for the joint venture, combined with other strategic/balance sheet priorities at both Rogers (all-IP, debt repayment) and Shaw (wireless, broadband).” Shomi shutting down could end up working in Bell’s favour, McReynolds said, as Crave “could see an uptick in subscriber growth and an accelerated timeline to breakeven.” Melani Griffith, Rogers’ senior vice-president of content, said in the release that the company will be “reaching out to eligible customers in the coming days as we have a wide range of premium experiences available for people to enjoy." Shomi declined an interview request Monday afternoon. Shomi’s demise is evidence that the online landscape is a difficult one to manoeuvre, according to Galappatthige. “The whole objective is to try to offset, at least partially, the decline of broadcast entities,” he said. “Canadian broadcasters are seeing pressure because of online and by trying to have online platforms of their own, you’ve offset at least some of it; it goes to show how difficult it is to do, even with a strong platform like Rogers and Shaw.” Ashton said it’s difficult for any small market to support multiple players, noting “we don’t have that many different donut shop chains.” What happens to the content for which Shomi had the rights depends on what’s in the contracts. “It’s really hard to say whether they sit in limbo or whether there was a use it or lose it clause in there,” she said. “We have to hope there were use it lose clauses…and there was a lot of content in there that people enjoy watching, so you want to be able to see it somewhere.” Ashton said it was surprising that the companies behind the service didn’t give Shomi a “longer try.” “Rogers and Shaw both have deep enough pockets that they could support it during a growth phase. You would have thought they would have given it more of a chance,” she said. — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and Charelle Evelyn at cevelyn@thewirereport.ca and reporting and editing by Anja Karadeglija at akarad@thewirereport.ca

As Shomi shuts down, experts point to strong competition in OTT

News | September 26, 2016

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As Shomi shuts down, experts point to strong competition in OTT

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