Market Insight

Cogeco gives up on IPTV

July 15, 2014

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Cogeco, Canada's third largest cable TV operator, has decided to abandon a  move into IPTV, taking an impairment charge of C$32.2 million (US $29.9 million) in the second quarter (the third quarter of the company's 2014 financial year). Cogeco will instead become the first Canadian operator to form a partnership with TiVo, providing its TV customers with a multiroom service which is expected to launch in the first half of 2015.

The IPTV project, which was in the works for years, proved too formidable a challenge for the cable operator, which thought it best to cut its losses. The partnership with TiVo for its Canadian subscribers will be in line with the strategy of its US subsidiary Atlantic Broadband, which already uses TiVo services and has seen some success, according to Cogeco.

Cogeco’s Canadian operations continued to see customer losses in the second quarter of 2014. TV subscribers decreased by 8,021, which was more than the 7,363 lost in the same quarter in 2013. Telephony subscribers declined by 1,433, the fourth straight quarter of telephony subscriber declines. High speed data services fared much better with a gain of 3,821 subscribers, a slight gain of over 2013, but was not enough to make total RGUs positive. As a result, total RGUs (TV + HSD + Voice customers) declined by 5,633, a trend Cogeco has not been able to reverse in the past four quarters.

Cogeco does indeed face stiff competition from IPTV, and there is likely to be no reprieve in sight. Cogeco’s main wireline competitor, Bell Canada, offered its IPTV service in 29% of Cogeco’s footprint in Q1 2014, and on completion of the Bell Fibe TV network, this will rise to 70% of Cogeco’s footprint, according to Bell Canada.

Our analysis

The news that Cogeco is teaming up with TiVO isn't a huge surprise given that the two companies have an existing relationship in the USA. It is more interesting that the company has given up on its IPTV trials. IHS has long considered IPTV the successor to traditional cable TV products, but the failed test by Cogeco bears witness to the fact that the transition is a very complex undertaking.

Perhaps the transition to IPTV isn't as inevitable as we once may have suspected. Regardless of the technology delivered to the consumer, execution remains key to driving down churn. Like cable operators in the US, Cogeco has gotten a bad rap for not only its status as market incumbent, but for offering its subscribers a broadband package which featured bandwidth caps which make the offer less appealing.

As Bell moves into Cogeco territory, Cogeco will likely increase broadband speeds and bandwidth caps in a bid to retain subscribers. Bell, on the other hand, will likely continue to poach subscribers at a rapid rate. This dynamic of subscriber transition is unlikely to end until a penetration equilibrium is reached, probably when Bell has captured more than 35% of each Cogeco market it enters. The move to partner with TiVo is not only logical given Atlantic Broadband's existing relationship, but is likely strategic as well.

Like Atlantic Broadband it can be expected that Cogeco will soon be offering Netflix to its subscribers via the set-top box. This possibility fits well with the assumption that Cogeco isn't looking toward future technologies to help stem the tide of subscriber defection, but rather is looking to improve the Cogeco experience for existing customers.

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