TV industry eyes future online

For internet service providers, broadcasters and cable and satellite providers, it was a decision they had been waiting for: the Canadian Radio-television and Telecommunications Commission announcement last Thursday that new media would continue to be exempt from broadcasting regulations.

The CRTC, looking in particular at the rise of online and mobile video, found that while new media is growing in importance, "Internet and mobile services are acting in a complementary fashion to the traditional broadcasting system." As CRTC chair Konrad von Finckenstein said in a statement, "Any intervention on our part would only get in the way of innovation."

For Canadian businesses trying to capture the online video market, however, regulatory issues may well be the easiest hurdle to clear.

If the testimony from the new media hearings in February and March were any indication, online video is in its infancy, with few of the players having developed a comprehensive business model. And save for perhaps Apple's iTunes store, no one has managed to satisfy both rights holders and consumers while still making money.

This is the conundrum when it comes to internet. Most everyone agrees that online video is the future of broadcasting, or at least part of that future. And yet few of the businesses with the most to gain and lose — broadcasters, cable and satellite companies — have figured out how to generate revenue online comparable to that from their core broadcasting business.

Differing business models for online video

"The business model for online TV is not really nailed down and the revenue outlook is not yet attractive [which is] paradoxical because internet — social media, online video — is increasingly becoming integrated into consumers' lives," said consumer technology analyst Kaan Yigit, president of Toronto-based Solutions Research Group.

Not that businesses lack for ideas. Cable companies like Time Warner in the United States and Rogers Communications in Canada have been pushing for a business model built around a cable online video portal, where a company's cable subscribers can access broadcast content online, no matter who their internet provider is.

Broadcast networks in the United States and Canada that own the rights to their shows and those they acquire from abroad have taken the online distribution model directly to their customers, through either their own websites — as is the case here in Canada with CTV, Global and CBC — or by teaming up with an online service like Hulu, a joint venture of NBC, Fox and ABC that is currently available only in the United States.

There is also the downloadable media approach favoured by Apple's iTunes, where television episodes and movies are purchased, in much the same way you would buy a DVD at a video store. But even Apple is experimenting with streaming video through its Apple TV set-top box.

And there are some, like Bell Canada, who are dabbling in a bit of everything. Bell launched Bell TV Online in October last year as an early experiment in the portal idea Rogers has proposed, has the Bell Video Store, offering downloadable content like the iTunes store, and also offers some video through its Sympatico/MSN internet portal.

"We have three different commercial models, three different web properties in this area at the moment," Gary Smith, the president of Bell Video Group at Bell Canada, told the CRTC during the new media hearings in March.

"It will be interesting to see which ones succeed over time," he said.

Risk of cannibalizing cable, satellite

Mark Tauschek, a senior research analyst with Info-Tech research group, said the general response here in Canada has been for cable, satellite and broadcasting companies to "dip their toes" in online video without committing to it completely.

"They are dabbling in it, keeping themselves in contention with the YouTubes and the Hulus," said Tauschek.

"But they haven't dedicated the resources, probably because they aren't sure if they want to be in the video streaming business."

The issue for many companies in the Canadian media landscape is that many are both internet service providers and either cable or satellite providers. As ISPs they might want to encourage their customers to go online to watch video, but any movement towards online could potentially come at the expense of advanced broadcast distribution such as Personal Video Recorder (PVR) services or Video on Demand (VoD) that seek to offer the same anytime, anywhere aesthetic that has made watching videos on YouTube or downloading them from iTunes so popular.

And cable and satellite is big business.

Rogers Communications has 2.3 million basic cable subscribers and 1.4 million subscribers to its digital cable service, while Shaw Communications has over two million subscribers to their services, with close to half of Shaw customers paying for digital cable services. Satellite television is also a growing industry, with BCE reporting in its first quarter a subscriber base of 1.86 million.

Telus, more known for its telecommunications business, now has 100,000 subscribers for its digital television service, which it carries over its internet infrastructure, but the company also announced earlier this year it would launch a satellite television service through a deal with Bell.

And despite the perceived threat of online video options from either peer-to-peer sharing of media files or companies like Apple and Google, subscription rates in cable and satellite are either growing or holding steady across carriers.

Online cable portal proposed

Video-on-demand (VoD), in particular, has become a viable business for cable providers, according to annual filings made with the CRTC. Rogers on Demand made $9.5 million before tax last year, four times what it made the previous year, while Shaw's VoD profits rose to $17.4 million compared to just $490,000 in 2004.

Michael D'Avella, senior vice-president of planning for Shaw Communications, said individual networks were less excited about the prospects of VoD because of uncertain advertising revenue streams, but cable companies have been quick to jump on the distribution model because it is seen as a differentiator between competitors. However, the industry is pushing to allow more current ads to be inserted into VoD, a prospect that is encouraging broadcasters to invest more in it.

Given the success of VoD and other cable and satellite offerings, it is not surprising that one of the more tangible proposed online video business models hopes to build upon the cable business.

During Rogers' appearance before the CRTC new media hearings, the company unveiled plans for a Rogers Broadband Video Portal, which it sees as a way to reach an online audience without cannibalizing its cable audience, particularly subscribers to its on-demand service and specialty channels.

Rogers aims to provide online on-demand versions of programming it obtains from its broadcast partners  — content that would be free to existing cable customers.

David Purdy, vice-president of television services at Rogers, said the portal would give Rogers the ability to preserve its cable revenue stream while giving its subscribers another outlet to view content.

"It also would give our customers a centrally aggregated site, so they know where to go to find things just as they do with cable," said Purdy.

Rogers said it was open to partnering with other companies on the portal, similar to how many of the major broadcasters in the U.S. teamed up on Hulu.

Securing online rights a stumbling block 

Not everyone agrees the online portal is workable, however. Michael D'Avella, senior vice-president of planning for Shaw Communications, echoed concerns his company raised during the new media hearings when he suggested that in the wide-open internet, consumers would simply bypass any content that lies within a "walled garden."

"The problem with a portal is that it presumes to know what people want," said D'Avella. "But with the internet nothing is restricted, and consumers have so many other avenues."

Other companies, such as MTS Allstream and Bell Canada, said the issue was online rights to content, which would have to be negotiated separately with each and every content provider, many of whom already have their own websites to promote their content.

CTVglobemedia declined to be interviewed for this story, however Rick Brace, president for revenue business planning and sports, did say that for such a system to work, it would need the partnership of all players.

"We need it to be universally accepted," Brace said. "To have us join in on that project with Rogers but to not have Shaw participate or other distributors participate would kind of upend the entire system — because, of course, we would never take down our website, we would have to leave it there. So there would be an end-around [the portal]."

Needs common standard for measuring audience

Yigit said the portal idea has potential, but said the major stumbling blocks are negotiating co-operation among all players, acquiring rights and also ensuring the security of the content.

Purdy thinks things will take off, however, once companies figure out a way to align all the distribution and make it easy for advertisers to understand.

"Each model has its own way of tracking viewers," said Purdy. "Rentrack follows Video on Demand, ComScore tracks online and Nielsen tracks television viewers, so from a media buyer perspective, it's hard to know what each is worth. We need to harmonize these numbers to make it easier for them, which will in turn let us sell advertising."

If companies are acting, it's because they perceive that the move towards online is the future, and that it's happening quickly.

"I think we're turning a corner," said Tauschek. "We're just on the tipping point of it being available, as broadband improves, browsers improve and the next generation of mobile phones and entertainment systems add to their capability.

"My intuition is that we're on the cusp of really big changes."