The number of Canadians who cut the cable TV cord grew by 1% last year, many of them opting for Internet TV services like Netflix and video on demand, according to a recent Media Technology Monitor report.
Canadian TV and Internet providers like Vancouver-based Telus (TSX:T) need not worry about protecting one side of their business (TV) from the other (Internet), however.
Not even Netflix thinks that over-the-top (OTT) TV and film streaming will replace cable TV any time soon.
A bigger concern for companies like Telus and Shaw Communications Inc. (TSX:SJR) is not competition for its TV subscription business but rather the strain that streaming to second-screen devices (tablets, smartphones and laptops) is placing on Wi-Fi.
Telus recently expanded its Optik TV on the Go app to allow its customers to watch video on demand via their tablets or smartphones. It’s just the latest example of providers trying to meet a growing demand for content over second screen devices.
The average Canadian home now has half a dozen connected devices, which is causing Wi-Fi congestion, especially in apartments and dense neighbourhoods.
Wi-Fi is a radio signal and there are only 11 channels over which it transmits. It’s an unmanaged spectrum, which means it operates on a first-come, first-served basis. Smart meters and other devices also transmit over Wi-Fi.
Congestion and interference (which can even be caused by microwave ovens) can cause Wi-Fi connections to suddenly drop.
Internet service providers take heat for lost connections, as customers call in to complain, when in fact it’s often not a broadband issue at all but a Wi-Fi issue.
“If you cannot connect your iPad, you call [the carrier] up,” said Stephane Bourque, CEO of Incognito Software, which makes the software that cable and Internet companies use to analyze and manage their broadband service. “To be honest, a number of times it’s not even their problem.”
Chris Langdon, Telus’ vice-president of consumer products and services, confirmed, “We’ve seen an increase over the last 12 months in those complaints,”
In some cases, the problem is simply that the Wi-Fi signal doesn’t broadcast far enough to reach more remote parts of a home or townhome, so homeowners will install a Wi-Fi repeater or extender. But if enough people in a townhome or apartment complex do that, it can actually amplify the Wi-Fi congestion problem.
Bourque’s company makes analytics software that helps Internet providers understand where usage problems are arising.
“Every provider we’ve spoken to, Wi-Fi is one of their top concerns,” Bourque said.
To make matters worse, most machine-to-machine (M2M) communication also uses Wi-Fi, so the problem may get even worse as “smart homes” have more M2M devices installed.
“It’s not going to get any easier,” Bourque said.
If there’s one upside to Wi-Fi congestion for telecoms like Telus, it’s that it makes super-fast LTE (long term evolution) cellular service more attractive. Unlike Wi-Fi, LTE is a dedicated cellular network, and offers speeds that are equal to broadband Internet.
“Congestion is generally a function of lots of people trying to use an unmanaged spectrum,” Langdon said. “If you really need to get connectivity, look at cellular data as a way to get access a network that’s fully managed.”
Customers cutting cable cord
In 2012, the number of Canadians who did not subscribe to cable TV rose 1% to 8%, according to Media Technology Monitor.
But Deloitte’s 2013 TMT (technology, media and telecommunications) predictions estimated the number of North Americans who have cut the cable TV cord in favour of over-the-top services like Netflix, Crackle and Hulu to be much lower – just 1%.
Whichever number is correct, it might be a lot higher in Canada, were it not for two significant barriers to adoption to OTT TV.
One is technological. According to Netflix, Canadian Internet service providers are lagging when it comes to providing the broadband capacity needed for high-quality movie streaming.
“In Canada, you still have some of the most restrictive Internet access of any Western country, where Internet service providers have caps on your plans,” said Joris Evers, communications director for Netflix.
Another barrier is content licensing. The Internet may transcend borders, but TV and film licensing doesn’t.
The result is that Canadian Netflix subscribers pay the same price as Americans for one-third of the content, and alternative Hulu isn’t even available in Canada – it’s geoblocked.
The current film and TV licensing is a throwback to when TV stations and movie theatres created distinct geographic markets, with broadcast or distribution rights being circumscribed by borders.
Distributors and broadcasters continue to strike deals that often leave Netflix unable to acquire the rights to show certain titles.
“We would love to do away with the regional licences,” Evers said. “We think that’s a relic of the geographically dispersed world of television stations and movie theatres.”
Until that happens, however, film and TV studios and distributors continue to lose millions to online piracy through bit torrent services, and more tech-savvy Canadians have found ways to access content outside of Canada through virtual private networks (VPNs).
Bill Tam, CEO for BC Technology Industry Association, believes there is an opportunity for a company to do to film and TV what Apple Inc. (Nasdaq:AAPL) did to music through iTunes, which helped kill peer-to-peer file sharing services like Napster.
“I think we’re poised, at some point in the next 10 years, for that to happen again in all aspects of content,” Tam said. “There will be agents working towards democratizing some of the content distribution model around television and movies.”