Owning content not crucial for telecoms

A new channel launched this month promises to give British Columbia news junkies an all-day fix — as long as they’re ShawCommunicationsInc. customers that is.

TheCalgary-basedcompany owns Global, the network behind the BC1 24-hour news station with a focus on B.C. happenings, and it is included in most Shaw cable packages in the province (though not yet available to Shaw Direct satellite customers).

Vancouver’s Telus Corp., which has a growing cable business of its own that now claims about 20% of the market share in the province, does not carry the station to the dismay of some subscribers who have voiced concern on its Facebook page, threatening to switch providers.

Unlike its major wireless competitors Rogers Communications Corp. and BCE Inc., and its toughest cable rival Shaw, Telus has no media assets of its own.

Yet, as this country has seen increasing consolidation of media ownership by companies that also own connectivity businesses, the B.C.-based company does not seem to have suffered from sitting out the programming game.

“There’s no obvious benefit to owning content, because everything you own, you have to distribute to third parties at the same cost relative to size,” said Dvai Ghose, media and telecom analyst with Canaccord Genuity in Toronto. “It’s basically illegal to differentiate with content in Canada.”

The Canadian Radio-Television and Communications Commission has rules in place that prevent broadcasters from making their channels available only to their own cable and satellite subscribers. In a “code of conduct” introduced in September 2011, the regulator extended those rules to prevent exclusive distribution over the Internet and mobile devices.

Telus, which has received a small number of calls about BC1, says it is evaluating the service and will decide whether to pick it up based on customer demand and negotiating a fair price with Shaw. In other words, it will add the station to its lineup if it makes business sense.

“It’s a brand new channel. We’re looking at it like we do with any brand new channel,” said David Fuller, chief marketing officer at Telus.

Two major factors are on Telus’s side when it comes to buying content, Mr. Fuller said: the economics of the media business and the regulatory framework.

In its most recent report on the telecommunications market, the CRTC said there were about 12 million subscribers to various broadcasting services nationwide.

Telus, which provides television services in B.C., Alberta and eastern Quebec, had 678,000 subscribers by the end of 2012. Of the vertically integrated players that have invested heavily in media, Mr. Fuller said, “Most of them have been crystal clear that they want wide distribution of their assets.”

Even if they wanted to keep certain programming solely for their own distribution services, the CRTC rules make it clear they have to play nice. “The rules around withholding are very black and white,” Mr. Fuller said.

George Burger, advisor to VMedia Inc., a Toronto-based IPTV and Internet services provider, said the protection the regulatory framework provides is why there is an “increasing amount of focus on those rules as opposed to necessarily who gets what [asset].” For example, during the first round of public hearings into BCE’s proposed acquisition of Astral Media Inc. last fall, intervenors including Telus emphasized “putting teeth” into the rules, he said.

“If a competitor doesn’t have anything to trade, short of any kind of regulation, how are they going to be in the game?” Mr. Burger said.

When the cable and wireless providers began snapping up media assets, some saw it as a bid to leverage the content to grow their connectivity businesses.

Rogers acquired the Citytv stations in 2007, Shaw bought the former Canwest-owned Global in 2010 and BCE acquired full ownership of CTV in a deal approved in 2011.

Mr. Ghose says while the media divisions themselves have been successful investments — in part because they were acquired at attractive prices and their earnings before interest, taxes, depreciation and amortization (EBITDA) have since grown — content ownership has not directly boosted their wireless or cable subscribers.

“My point isn’t that they haven’t been successful as standalone businesses, it’s that they haven’t been successful as integrated investments,” he said.

One thing content ownership does offer, he noted, is a hedge against inflation in the price of programming as the cost is simply transferred between divisions. Telus’s Mr. Fuller said rather than spending big money on media buys, the company has invested $30billion in core infrastructure improvements since 2000. “Our choice is to favour network investments,” he said.

As for BC1 (which is also not available on Bell ExpressVu), Mr. Fuller said Telus has a good relationship with Shaw and will negotiate picking it up should it prove to be “super hot.”

“The answer is yes we will if there’s customer demand for it.” CANADA BTB REIT, a company that owns commercial office and industrial properties, will report its fourthquarter results after markets close. AuRico Gold Inc. will release its yearend results after markets close.