Report says putting Corus and Bell together would strengthen Canadian industry
By Greg O’Brien
WITH DIGITAL PLAYERS already claiming the bulk of the revenue and a huge swath of viewing time in Canada, Bell Media and Corus Entertainment must come together if they are to survive amid the growing presence of global streaming players, according to a new report from Scotiabank analyst Jeff Fan.
The report gets to the point in its title: “More Canadian Media Consolidation is Necessary and Inevitable.”
Noting American telcos have recently abandoned their content dreams of late because they need the cash and resources to feed 5G wireless developments, Fan explains Canadian cellcos which also own broadcasters will soon face the same cost and deployment requirements, while their media divisions face growing viewership and revenue pressures.
That means Bell Media and Corus Entertainment, “must protect their non-sports content supply to avoid being disintermediated beyond the next contract renewal,” writes Fan. “This requires them to have a stronger domestic market position in advertising and subscription video on demand (AVOD/SVOD) with content diversification and distribution, which in turn would position them to retain content supply from the likes of Warner Discovery, NBCU, or Viacom.”
Those companies, plus others like Disney, are extremely important suppliers to Bell and Corus and it would be dangerous for both companies to lose those content pipelines.
The issues facing Canadian broadcasters go beyond foreign streamers and extend to Google and Facebook who now earn, the report estimates, 54% of all ad dollars spent annually in Canada, far exceeding prior predictions. “We estimate that the global tech/media giants (Google and Facebook) have surpassed half of the Canadian advertising market share in 2020 at 54%. In our last analysis in 2017, we estimated that they would reach a combined 44% by 2020.” (see chart above).
“We estimate that approximately half of the TV advertising and subscription revenue is now generated from digital and non-linear formats (e.g., subscription video on demand, advertising video on demand). In our last analysis in 2017, we estimated the digital mix would reach 35% by 2020.”
The sheer volume of ad dollars flowing to Google and Facebook, coupled with the number of eyeballs moving to Netflix, Amazon Prime Video and Disney+, should build a strong case for bringing Bell and Corus together, says the report.
“BCE and Corus’ combined strong market position in traditional TV is not that meaningful once digital is factored in,” writes Fan. “Although BCE and Corus’ combined TV revenue has a significant 45% share of the traditional TV market, we estimate they make up only 25% of the TV market when digital is included. We estimate that, combined, they lost 10% over the past four years to digital, compared with our estimate of 5% share loss when we last published in 2017.
The Covid-19 pandemic has only accelerated the shifts to digital, adds the report.
“Over the past four years, not only has Netflix extended its lead, but we believe Amazon Prime has established a solid #2 position in Canada behind Netflix. Furthermore, we estimate Disney+ is a close #3 behind Prime. We estimate there are approximately 10 million Prime subscribers (households) in Canada. Based on the estimate of Prime subscribers who are regular Prime Video users in the United States, we estimate that there are approximately 4 million Canadian Prime Video users. Using the stats in CTAM Canada’s Media360 survey released in December 2020, we triangulated the approximate number of subscribers (or users) of Disney+ at approximately 3 million. The Canadian-based streaming platforms are well behind. Including Crave’s linear subscribers brings this figure to approximately 2.9 million,” writes Fan.
“Once we include the number of hours households watch on streaming, Bell and Corus’ share shrink and the combined share drops from 73% to 49%.” – Jeff Fan, Scotiabank
The viewership shares of Canadian broadcasters change starkly when streaming viewership is included (see charts below) and this should clear the way for the CRTC to approve the consolidation of the main Canadian broadcasters, says the report.
“Based on traditional linear viewing, Bell Media and Corus are the undisputed leaders, particularly in English Canada, with 40% and 33% share, respectively, for a combined share of 73%,” reads the report. “However, once we include the number of hours households watch on streaming, Bell and Corus’ share shrink and the combined share drops from 73% to 49%. While that is still above the CRTC typical threshold of 40%-45%, we think the combined share will trend toward this level in the coming years with the growth of streaming to the global players.”
Fan notes industry ratings agency Numeris is in the process of developing a cross-platform audience measurement solution, something it announced in 2017, but it won’t be ready until 2023.
The report also acknowledges significant barriers stand in the way of further consolidation. First, the CRTC would have to expand its definition of the Canadian TV market in order to include the revenue and viewership impact of global streamers.
That might not come until, or if, Bill C-10 is passed and those global streamers are somehow brought into the system and properly accounted for.
As well, Fan rightly says the creative sector such as producers, actors, the CBC and so on would oppose, as would various unions which would vehemently protest the loss of, among other things, news jobs across the country.
Fan is undecided on whether Bell would be a buyer or a seller in his consolidation scenario. Much spending will be required on the next generation of 5G but Bell Media, despite its small size, still makes up 10-13% of BCE’s total unlevered cash flow. That means a transaction such as AT&T just completed with Discovery – where a new media company (Warner Bros. Discovery) is created with AT&T retaining a significant ownership stake – could make similar sense for Bell-Corus.
Fan says, however, sports might be carved out of any such transaction. “We think vertical integration in sports content and sports franchise ownership (for BCE and Rogers) have made the Canadian traditional channel bundle more resilient than many other markets globally. The vertical structure in sports that BCE and Rogers have established in Canada is an enviable position of many global media players, and we do not see BCE giving up that position. Therefore, if BCE is a seller of media, it may only consider the non-sports portion. We think combining the non-sports segment with a company such as Corus would form a much stronger streaming platform to acquire subscribers and retain content supply from the U.S. studios,” reads the report.
“If BCE’s Crave and Corus can establish a solid position among in Canada among Netflix, Amazon Prime, and Disney+, with content coming from Warner/HBO Max, Peacock, Viacom/Paramount+, Starz, and Discovery/Discovery+ combined, it would be unlikely that any of these current partners go direct in Canada, even when their existing deals expire. How could any of the other U.S. studios expect to gain enough share in Canada alone to make it worthwhile relative to a wholesale deal?”
