Cable, Satellite and Fibre TV (BDU) and Discretionary Programming

Future Viability: Mature

Making investments in new technology to retain TV subscribers.

Cable, satellite and fibre TV (also known as broadcasting distribution undertakings or BDUs) and the programming services they offer remain profitable and viewing levels high
These multi-channel, subscription TV services are the dominant video platform, but competition from online video services has resulted in erosion of BDU subscribers and revenues
Declines are happening at a slower pace in the French-language market than in the English-language market, but are equally evident in both

Despite gloom-and-doom predictions that suggest the end of subscription TV is near, we expect that investments by BDUs in Internet-based distribution will help them evolve their service offering and face competition by online service providers. However, we also expect the number of discretionary programming services is likely to decline in the future due to a more competitive environment.

Read time: approx. 7 min

The Fundamentals

Rogers, Bell, Shaw, Eastlink, TELUS, Videotron, Cogeco… distributing CBC News network, TMN, Canal D, Casa, Séries+, Discovery, HGTV, Family Channel, TVA Sports, Sportsnet, TSN… “BDUs” refers here to cable, satellite and fibre TV subscription services and the discretionary programming services that rely on them for distribution. This model includes accompanying authenticated online TV services (TV Anywhere and Go apps), which are often included with a subscription.

Highly capital-intensive business. TV service distributors make significant upfront investments in physical infrastructure, such as satellites and fibre-optic cables, in order to distribute a wide range of discretionary services for virtually all tastes and interests, as well as redistribute over-the-air TV channels. For cable and fibre TV services, these investments also contribute to the rollout of broadband Internet services.

Content aggregators adjusting to a more competitive environment. BDUs have positioned themselves as aggregators for a wide variety of TV services. They typically package and promote the most popular TV channels in a large bundle. As competition grows among BDUs and as they battle for market share with online video services, distributors are offering more packaging options (e.g. small basic, smaller packages, pick-and-pay) and technological enhancements (e.g. on-demand and live TV across multiple screens) to retain subscribers. Some of them are even bundling online services into their offering (e.g. Netflix) to retain their role as aggregator. As price competition intensifies and viewing increasingly shifts to the on-demand space, we could see a streamlining of the number of linear discretionary services, particularly discretionary services that rely on repeats of acquired content.

Canadian Contribution

Key contributors to Canadian content and programming in the current system. The discretionary services carried by BDUs have varying but significant levels of direct Canadian programming expenditures and often must also spend on specific types of programs, such as drama, documentaries or variety programming. Cable, satellite and fibre-based TV distributors must also contribute at least 5% of their broadcast revenues to Canadian content creation and production. This contribution can take the form of a certified independent production fund, a contribution to the Canada Media Fund or contributions to local expression. These providers must also distribute channels of special interest at prescribed rates and carry a wide variety of programming that reflects the needs and interests of all Canadians.

Consumer Profile

Still Canadian television’s dominant platform, but facing erosion. On average, TV subscribers watch 27.7 hours of television per week, more than any other video platform. Viewing by TV subscribers is lower for Anglophones at 26.5 hours/week than for Francophones at 32 hours/week. Though it remains by far the most widespread way to watch TV, BDU services are seeing declining subscription rates as online alternatives drive cord-cutting. On average, three-quarters (75%) of Canadians still subscribe to TV, but Anglophones have a smaller penetration rate (73%) than Francophones (83%).

Audience trends for Cable, Satellite and Fibre TV (BDU) and Discretionary Programming

Source: Numeris (hours and reach), MTM (subscribers)

Financial

Although revenues and profits are starting to decline, they remain high. BDU subscription revenues represent the lion’s share of the revenues in the Canadian video landscape. In 2016, these revenues represented a market share of nearly 60%. When including the other revenues from discretionary and VOD/PPV services, this share was nearly 70%. Though revenues have only started declining recently, subscriptions have been declining for some time now and BDUs have been able to offset much of this decline by offering additional services and higher-value offerings (e.g. IPTV). According to Ovum, these offerings should continue to offset the decline in subscribers, and revenues should remain relatively stable in the near future.

While revenues have only slightly declined since a peak in 2014, profitability has been declining since 2013. This pattern likely results from the large investments IPTV requires as it aims to grow subscriber market share. As these investments decrease and client take-up increases, profits are likely to recover.

Financial trends for Cable, Satellite and Fibre TV (BDU) Delivery & Discretionary Programming

Source: CRTC estimates (CRTC data collection; Ovum; MTM consumer data)

Notes:

The figures provided by BDUs operating outside of the province of Quebec are used as a proxy for the English-language market. The figures provided by BDUs operating in the province of Quebec are used as a proxy for the French-language market.
Profits and Canadian contributions for satellite TV services are based on the ratio of subscribers in Quebec versus the rest of Canada. Satellite TV services subscriber data by province is not available for 2012. These services have therefore been excluded from the profits and Canadian contribution breakdowns by language for 2012.
VOD and PPV services are excluded from the Canadian contributions and profits by language market since they mostly operate nationwide.
Figures for English-language discretionary services include services that broadcast in third languages.
The market share of discretionary services excludes subscriber revenues.
PBIT and PBIT margin are the measures used for the profits of discretionary services, while EBITDA and EBITDA margin are the measures used for the profits of BDUs.
Some figures may have been updated since the reference document.