TORONTO – The future of cable is “outstanding”. Just ask Louis Audet, the president and CEO of Cogeco Inc. and Cogeco Cable.
Speaking with Cartt.ca prior to presenting the company’s 2010 financial results to shareholders in Toronto last week, Audet shared Cogeco’s plans for wireless, why he’s not worried about Netflix, and his thoughts on vertical integration in Canada.
“There are good reasons to believe that”, Audet said about his unshakeable belief in the cable industry’s rosy future. “It’s not a wanton statement.” A perfect example of cable’s ability to evolve is Cogeco’s plans to trial addressable advertising in Canada next year. “This is a longer-term view of the role that cable can play to make (television) advertising more efficient for advertisers the world over, as well as become a new source of revenue for us”, he said. “(The trial) is just the small beginning of something that will become huge.”
Audet also said that “it’s certainly a possibility” that Cogeco will also give the technology a try at its Portuguese cable company Cabovisao.
But what about some other pressing questions?
With Videotron and Shaw entering the wireless business, will Cogeco follow suit?
“Our thoughts have not changed much. We continue to think that the time for us to enter wireless has not arrived”, Audet replied. “What we seek to make such a decision is, ‘is this going to make a difference for us in terms of either acquiring customers, retaining customers, reducing churn, or satisfy some sort of demand that our customers have’, which we do not detect, for the time being.
“That’s why we decided not to participate in the spectrum auction and not to start a wireless company. We think that the risks involved are more than a company our size should chew on, so we’ve passed on that.”
How about using another company’s wireless product to complement Cogeco’s cable, Internet and home phone offer?
“When there begins to be positive evidence that it would be a plus, we will do it”, Audet continued. “But today we have not seen that evidence. Customers are not phoning us saying ‘well, if you don’t give me this quad play, I’m not going to subscribe’. No one is calling us saying that.”
So what are Cogeco’s Canadian customers asking for?
“More HD content – we’re at 74 channels now, will be at 100 in the course of the next year. People are also asking for higher speed Internet service and we’ve introduced DOCSIS 3.0 technology that allows us to offer 30 and 50 Mbps packages now, plus the capability to offer more than 100 Mbps if ever this makes sense, and in fact we do in Portugal (Cabovisao offers Internet packages of 60 and 120 Mbps). We don’t detect the demand here for it – yet. But when we do, we’ll be equipped.”
How can cable stave off the effects of over-the-top video services like Netflix?
“When competitors arise, we take them seriously and we’re very careful, but I don’t think that there’s reason to be alarmed”, Audet said confidently. “There are two ways to look at this. One way is the negative way – to try and stop the tide for which there is absolutely not one ounce of hope. And the other strategy is to embrace it, be positive about it, and take the ball and run with it and that’s what we’re doing.
“What we’ve implemented now are bit cap rates that when people stream more, they eventually exceed their rate and we charge for surplus usage. The revenue that could be lost, because less programming is bought, for example, or maybe some people decide to forego their TV service and then stream more, will be found on the Internet side. So I think cable wins one way or the other.
“If you think about what Netflix, in particular, is doing for the consumer, is it catering to the need to have a wide array of high quality, HD, large screen, ready-to-use content? The answer is no. I’m not saying that it’s not a good service – it is, it has 16 million customers. I’m just questioning its power to really displace a video service.”
With other Canadian distributors snapping up broadcasters, what are Cogeco’s thoughts on vertical integration?
“This (trend) is a reflection of market strength. Through time, distributors have managed to build solid, profitable businesses, and broadcasters have displayed less discipline in managing their affairs, and consequently have had less than stellar results. What you’re seeing today is the result of one industry that is very strong, and another industry that’s now in a weak position, and thus are good buying opportunities. That being said, there are risks, and there are risks to those of us who don’t own programming assets, and these risks have to be managed.
“As you know, the regulatory framework in this country requires programming to be made available on a non-discriminatory basis to any distributor. We will be actively participating in the new call for comments and the CRTC process that will begin in the Spring on this issue; we will also participate actively in the CTV/Bell hearing; and, we will ensure, for the protection of all independent distributors, that these rules remain in place.
“But we will actually go a step further – we will be asking for strong intervention capabilities for the Regulator in cases where vertically integrated companies abuse their dominant position. We currently have a regime that is very permissive, a regime where someone might contravene (CRTC regulations) and just get a slap on the wrist. You cannot allow such prevalent, strong vertical integration and not at the same time reinforce the rule enforcement side of the house so that people are not pushed out of the market through abuse of dominant position. So we will be following that very closely, as will a number of others – we’re not alone in this.”
With challenges at its Portuguese subsidiary seemingly under control, will Cogeco expand into other countries?
“We have made a conscious decision to no longer comment on that subject and the reason is that there has been all sorts of speculations on what we’ll do or not do. The fact of the matter is that this company has grown through acquisitions over the course of the last 25 years. If you go back in time, we once served about 40,000 customers. We owned a few TV stations in those days, we had about $40 million in revenue and between $1 – 2 million in EBITDA. In the last 25 years we’ve growing through so-called internal means, i.e. growing the existing business, and through external means, i.e. acquiring other companies – in the course of our history, we’ve acquired about 40 which has been very successful for us.
“If you look at us today, with our guidance for fiscal 2011 at $1.4 billion in revenue, $530 million in EBITDA, a stock that today is worth about $40 on the market, we’ve created immense value using that model. But it’s not for us to start predicting what we’ll do and where we’ll do it. We’ll do what everybody else is doing and announce it once it’s done.
And how is Henri Audet, Cogeco’s founder, chairman emeritus, largest shareholder and Louis’ father?
“Henri is very well. We recently celebrated his 93rd birthday, and last summer my parents celebrated their 60th wedding anniversary. They are now senior people, but they live a healthy life and they continue to take immense pride in being the owners of Cogeco and Cogeco Cable.
“People don’t really think about it this way, but they should – people always think about it in terms of money. The Audet family doesn’t think about this business that way. They think about it as the story of a small company that grew and continues to grow, with a head office in Canada, that procures employment to thousands of people, and offers services that customers value very much. That has nothing to do with money, strangely enough.”
