Analysts: Satellite TV May Be Reaching Peak In Canadian Market

When Canada’s Bell Expressvu and Star Choice launched their direct-to-home (DTH) services in 1997, the cable TV industry nicknamed them "The Death Stars," fearing that consumers – many who were fed up with their local cable TV carriers – would flock to DTH.

Throughout the past eight years, the satellite operators have made gains and now hold 27 percent of the Canadian TV market, according to the Canadian Radio-Television and Telecommunications Commission (CRTC). While cable is still the leader by a wide margin, accounting for nearly 73 percent of the total basic services subscriptions in Canada, the satellite industry made strong gains in 2005, the CRTC said July 5.

"From 2004 to 2005, revenues as well as number of subscribers remained more or less constant for Class 1 cable [TV] carriers," the CRTC said. "On the other hand, direct-to-home satellite distribution undertakings and multipoint distribution system undertakings experienced significant growth in terms of subscription revenues and number of subscribers."

In 2005, cable revenues remained fairly steady at 4.6 billion Canadian dollars, and the number of subscribers dipped slightly from 6.64 million to 6.62 million.

Throughout the same period, "the number of subscribers to basic DTH services and multipoint distribution services grew from 2.3 million to 2.5 million, while revenues grew from 1.4 billion Canadian dollars to 1.5 billion Canadian dollars. For the first time, the two TV services recorded profits before earnings and taxes of 44.9 million Canadian dollars, compared with losses in previous years, the CRTC said.

But while the news looks good, industry analysts are not as excited about the future for satellite operators.

"The market for DTH in our opinion has flattened," said Jeff Leiper, director of Canadian market strategies for the Yankee Group. "… Satellite TV is going to play an important role in rural areas of Canada," but not in the cities where the vast majority of Canadians now live.

In the same vein, Pricewater-housecooper predicts that subscription rates for satellite TV to grow by 3.4 percent a year through 2010, said Jerry Brown, director of Pricewaterhousecooper’s Canadian entertainment and media advisory practice. "In contrast, we expect 8.1 percent growth in cable subscriber, with the fastest growth in digital cable."

The only growth for DTH through 2010 will be in new TV households, and that DTH will capture only 43 percent of these households, compared to 57 percent for cable, Brown said.

The bleak future for DTH providers is based on is network capability. With its terrestrial two-way infrastructure, Canadian cable TV is rolling out video on demand (VOD) programming in a big way. "We currently have over 2,000 hours of VOD content available, and we carry about half a dozen pay VOD services plus extensive free content," said David Purdy; vice president and general manager of television services for Rogers Communications; Canada’s largest cable TV operator with 2.3 million subscribers. "We always knew that once VOD became viable, it would put pressure on DTH providers who can’t deliver the same content."

Purdy’s partisan view is supported by Leiper. "Even with improved digital compression and additional transponders, there are technical limitations to what you can do with satellite TV," he said. "As you know, the importance of VOD is growing in Canada, and that can’t currently be offered using satellite."

Bell Expressvu, which has more than 1. 7 million subscribers, and Star Choice, with more than 860,000 subscribers, dispute the bleak view of the future.

"They’re espousing exactly the opposite of our three to five year view," said Pat Button, vice president of marketing for Bell Expressvu. "Based on our growth strategy, we plan to stretch our base as far as 2.5 million subs by 2010."

While Button would not divulge Bell Expressvu’s plans, he said company intends to launch two-way services using telephone return paths and that Internet Protocol TV offerings being prepared by sister company Bell Canada to help the two compete against cable. Add the fact that Bell Expressvu will be launching another satellite in 2008 to provide even more capacity – the company currently operates four Nimiq DBS satellites – and Button expects Bell Expressvu to withstand the digital cable onslaught.

Peter Bissonnette, president of Shaw Communications Inc., which oversees Star Choice and Shaw Cable, also is more confident than the analyst. "Thanks to our satellite services on Anik F1R and Anik F2 – both of which are owned by Telesat – our satellite division generated approximately $60 million last year in free cash flow," Bissonnette said.

Add its ability to sell cable or DTH services as best makes sense – based on technology and consumer preference — and Shaw Communications is not worried about losing business to new technologies.

Given both Bell Expressvu’s and Star Choice’s strong links to terrestrial service providers, it may not matter if DTH has peaked in Canada or not. If the analysts do prove to be correct, then both companies will simply play their terrestrial cards accordingly. If not, then Bell Expressvu and Star Choice will continue to grab Canadian consumers; many of whom remain disenchanted with this country’s cable TV providers.

–James Careless