Market Insight

Shaw gives up on IPTV

June 29, 2015  | Subscribers Only


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Shaw Communications, Canada’s 2nd largest pay TV operator, has abounded its IPTV service in development since 2013. As a result, Shaw took a C$55 million write down charge in its fiscal 3rd quarter results for its abandoned IPTV assets. Instead, the company will look to license Comcast’s X1 platform and leverage Comcast’s cloud technology for multiple screen experience and use of devices both in and out of the home. Shaw is working closely with Comcast and will being a technical trial of the X1 cloud platform.

Shaw decision comes in a quarter where it reported a video subscriber loss of 24,524 for its fiscal 3rd quarter, double the amount lost in its fiscal 3rd quarter 2014, where 12, 075 net video customers disconnected. Shaw has recently moved away from bundling and promotional strategies on Home Phone services to better maintain strong consumer ARPU. Promotional activity and fiber to the home buildout by Shaw’s primary competitor, Telus, also impacted Shaw’s video subscribers losses.

While Shaw undergoes its shift from its IPTV service to Comcast’s X1, this is not the first time a major Canadian pay TV operator has decided to abandon in house IPTV plans and change strategies. In 2014, Cogeco abandoned its IPTV service and took a C$32.2 million impairment charge. Cogeco instead decided to partner up with TiVo to provide its customers with a multiroom service.

Our analysis

Transitioning from cable to IPTV may seem like a straightforward move, given that most cable operators are fiber to the node. But at the heart of the matter is the fact that cable operators’ legacy of QAM modulation makes the transition very difficult. If Shaw were to transition to IPTV it would have to upgrade its infrastructure, as well as make significant capital expenditures to replace set-top boxes.

By licensing Comcast’s advanced X1 platform the company could benefit with a low resistance road to features which subscribers enjoy. Comcast has seen marked success thanks to X1, the company has had several recent quarters of positive subscriber growth. While not wholly attributable to X1, the technology has played a significant part. For Shaw, upgrading customer experience is going to be a solid move which will compliment its existing efforts to improve customer service experiences. By moving to X1, rather than IPTV, Shaw could maximize its return on investment.

The move is expected to be capital friendly in terms of CAPEX spending. In its latest quarterly earnings call, Shaw stated that they are likely to achieve over 40% savings in CPE equipment going forward due to rolling out the same set-top boxes Comcast has in production. In addition, another benefit is that Shaw will leverage Comcast's video cloud, therefore not having to build one out in Canada. The move will also enable Shaw to focus its resources and attention elsewhere as Comcast's X1 platform is a proven technology that has seen success for the company.

Like the US pay TV market, Canadian pay TV operators face uncertain times as technology drives consumers away from traditional pay TV products. Recent CRTC mandates which will require true a-la-carte channel offerings for all pay TV providers by 2016 will have an impact. However, to truly compete with a diverse field of very low cost or free OTT products, pay TV providers will need to up their game. Shaw’s rollout of X1 could serve to mitigate some of the losses that the company is expected to suffer due to OTT. Unfortunately there is no way to put the OTT genie back in the bottle, the best pay TV operators can hope to do is to provide complementary services which will continue to attract new customers.

Geography
Canada
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