How foreign online streaming will upset Bell and Rogers apple carts

Canadians who want to view specialty channels and watch their favourite shows must go through their cable providers, like Bell and Rogers.

But some industry experts say that may change. They suggest that Canadians will inevitably have access to American content streamed online when online streaming becomes the norm and more and more people abandon their cable providers.

It's already happening south of the border. Last week, HBO announced that it will allow Americans to stream its programming online next year without having to subscribe to the cable channel. 

While HBO won't be streaming its service into Canada, at least not yet, the experts say the pressure from the public and from some content providers to allow more streamed foreign content is bound to grow. And that could mean that Bell and Rogers may eventually be relegated to essentially providing the "pipe" —  or the actual cables, connecting to households that facilitate internet or wireless service. 

"[Rogers] controls the pipe as does Bell. They will come to the realization, that’s their model, forget about content, and all this other nonsense, they don’t really have anything of propriety there to offer," said Fred Lazar, an economics professor at York University's Schulich School of Business. "Focus on the pipe, control that, and essentially increase the rates charged there as people start migrating."

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• CRTC report shows cost of cable, telecom services increasing
• TV at 75: How HBO and Netflix are forcing networks to evolve
• CRTC hearings: How the outcome could affect your cable and internet bill

'Try and slow the migration'

“What [Bell and Rogers are] going to do is try and slow the migration as much as possible and try and better position themselves through different types of pricing to take advantage of the inevitable migration [from cable to online]," he said.

In a sense, cable companies were the Netflix of their time, Lazar said, mostly providing cable subscribers programming (much of it American) that had been created by others, while also supplying a healthy dose of Canadian content.

But then the internet came along, providing a more direct distribution forum for content that allowed customers to pick and choose what they wished to view. Companies like Netflix, which provided quick online streaming access to films and TV shows and catered to binge viewers, roared to success, putting the future of cable in jeopardy.

This is why content entertainment companies like HBO are also getting into the streaming business (CBS similarly announced that it too would start a streaming service.)

"Whether it’s the NFL or whether it's Universal Studios programming or HBO programming … why on earth should you share your revenue with third party cable companies and aggregators and the TSNs of this world and The Movie Networks of this world," said Dvai Ghose, cable and media research analyst at the Toronto-based investment bank Canaccord Genuity.

"Surely the most profitable model for you is to go directly to the customer."

Streaming will allow content providers to cut out the cable middlemen and provide their shows directly to the customer.

“Netflix won’t be necessary, the The Movie Network won’t be necessary, you’ll go directly to these content producers," Lazar said, adding this is why Netflix, ironically has begun creating original content, fearing it may eventually get squeezed out.

Lazar predicts this could begin to take shape in five to 10 years, as the cable companies contracts with content providers begin to expire.

The Canadian Radio-television and Telecommunications Commission, which is responsible for protecting Canadian content, will initially make it difficult for foreign-produced programming like HBO to be streamed via the internet to Canadians, Lazar said.

However, the broadcast regulator will be overwhelmed by a public demanding those foreign restrictions be removed and their powers will diminish, he said.

Change business model

So with fewer and fewer cable subscribers, analysts say Bell and Rogers their business model would need to evolve. For instance, more data usage would produce higher fees, meaning the telecom companies would stand to generate a lot of revenue.

"I think whether it’s Bell or Rogers, they’re looking at it and saying ‘cable has essentially matured,' and they’re going to start changing their pricing models for internet realizing more and more content will be going by the internet regardless of what the CRTC does," Lazar said, "So to protect their revenue sources as more people cut the link to cable, they’re going to start increasing the rates for the internet connection."

Ghose said Bell and Rogers should embrace the role of becoming just "a dumb pipe provider."

"What is wrong with that? You will need that more than ever," he said.