MONTREAL — California-based Netflix is challenging Canadian cable, satellite, pay TV and traditional broadcasters by offering a growing amount of competitive online TV and movie content for consumers.
“I am certain of one thing, and that is cable companies and pay-per-use broadcasters are shaking in their boots for sure,” analyst Mark Tauschek of Info-Tech Research Group said Wednesday.
“Netflix is just so cheap, it’s hard for them to compete with that,” he said, adding that similar providers like Hulu will eventually make their way into Canada.
While companies such as Astral (TSX:ACM.A), Bell (TSX:BCE) and Rogers (TSX:RCI.B) are putting content across TVs, computers, smartphones and tablets, Netflix is doing that and more, Tauschek said from London, Ont.
Netflix also allows access to its service through popular game consoles that hook onto televisions.
“I can get it on my Wii, I can get it on my Xbox, I can get it on my Apple TV, I can get it on my computer, I can get it on my iPad, I can get it on my iPhone for $8 a month when I am paying over 100 bucks a month for cable. It will be increasingly compelling when they get more content.”
Netflix recently inked a deal with Paramount Pictures to show all of its first-run films in Canada — content that typically would have been seen on Montreal-based Astral’s Movie Network and Movie Central operated by Toronto’s Corus Entertainment (TSX:CJR.B) pay TV services.
RBC Capital markets analyst Drew McReynolds said Astral and Corus’s loss of Paramount to Netflix opens the door to more competition from these web-based services.
“Although the loss of Paramount is not without precedent for Astral and Corus (precedents have included Twentieth Century Fox and Warner Bros.), the consequence is now allowing new ’over the top’ services a stronger foothold in Canada,” McReynolds wrote in a research note.
McReynolds said the movie studio’s pricing likely scotched the deal.
“We understand that pay television operators Astral and Corus did not agree with Paramount on pricing and other terms during recent re-negotiations and thus dropped the studio from the pay line-up.”
In the near-term, the impact of services like Netflix on the Canadian television system won’t affect companies’ earnings, McReynolds said, but in three to seven years, they will likely affect margins and in seven to 10 years would become a “legitimate” substitute for cable and satellite TV.
McReynolds lowered his share price target to $45 from $46 for Astral, and to $26 from $27 for Corus.
Astral TV president John Riley said Astral’s Mpix movie channel will continue to offer older Paramount titles.
“The number of new titles that a given studio produces in a year is relatively small, particularly in this case,” said Riley, president of Astral Television Networks.
Current Paramount films include “True Grit” and “The Fighter.” About 350 Paramount films will eventually be added to Netflix.
Riley said competition for movie and TV shows is constant and he doesn’t believe deals like Netflix will result in fewer subscribers to Astral’s pay TV service, which has about two million subscribers for the Movie Network and French language Super Ecran.
“As long as we continue to provide a top notch product and make it available to everyone and every platform, it will remain an attractive offering,” Riley said from Toronto.
“What I think differentiates us is exclusivity,” he said, referring to HBO and Showtime series that air on the Movie Network.
U.S.-based Netflix announced this week that it has made changes to its streaming service so that Canadian subscribers would use less data, due to caps put in place by Internet service providers. It now has a subscriber base of more than 500,000 Canadians.
Bell executive Mirko Bibic said now that Netflix is getting access to exclusive content, it’s competing with broadcasters.
“If they can offer this first-run content on an exclusive basis, why shouldn’t they contribute to Canadian cultural objectives like the rest of us do?” asked Bibic, referring to contributions to Canadian content and independent programming.
“I think the arrival of Netflix and how they’ve evolving their business model certainly raises a number of issues which we’re all going to have to grapple with as an industry,” said Bibic, senior vice-president of regulatory affairs.