BUSINESS

HBO plans stand-alone streaming service, but not yet for Canadian viewers

10/15/2014 04:34 EDT | Updated 12/15/2014 05:59 EST
TORONTO - HBO's plans to launch a stand-alone streaming service in the United States that will let viewers sidestep their cable company to watch popular shows like "Game of Thrones" and "True Detective" could be just a few years away from posing a similar threat to Canadian telecoms.

While the HBO service won't be immediately available in Canada, it demonstrates that the U.S. company is prepared to follow a growing number of viewers who are cancelling their cable in favour of services like Netflix.

The announcement by HBO, which plans to launch its "over-the-top" service next year, increases the possibility it will make inroads into Canada, RBC Capital Markets analyst Drew McReynolds wrote in a note.

But it'll still take several years because new HBO programming is under an exclusive licence in Canada to Corus Entertainment (TSX:CJR.B) and Bell Media, until 2018, McReynolds said.

"We believe Time Warner's decision to offer HBO Go on a stand-alone basis in its core U.S. market is directionally negative for Corus," he added.

"In our eyes, it increases the risk of HBO going 'over-the-top' into Canada when its current output deal with Corus/Bell expires."

Both Corus and Bell issued statements highlighting their existing agreement to be the exclusive distributor of HBO content in Canada.

On Wednesday, HBO chief executive Richard Plepler told investors in its parent company, Time Warner Inc., that it wants to target the 80 million U.S. households that do not have HBO, but may want to watch its programs.

"That is a large and growing opportunity that should no longer be left untapped," he said.

Since HBO first went on the air in 1972, it has been tied down by cable companies who require viewers to pay for expensive packages even if they just wanted the HBO channel. When HBO launched the HBO Go streaming website in the U.S. four years ago, its subscribers were still forced to pay their cable company for TV channels.

However, a growing number of viewers have been turning off their cable boxes and choosing to stream content from the Internet.

The CRTC issued a report earlier this year which found over 40 per cent of Canadians said they watched TV over the Internet in 2013, a figure that's roughly in line with figures from the U.S. where about 45 per cent of Americans stream TV, according to research firm eMarketer.

Netflix has been a major influence on where viewers turn for entertainment, with original shows like "House of Cards" and "Orange is the New Black" available to stream on their subscription service.

Amazon is also quickly building its reputation with its own subscription streaming service in the U.S., where its producing critically acclaimed shows like "Transparent." The company has said it doesn't have plans to launch in Canada yet.

The CRTC found 29 per cent of English-speaking Canadian adults said they used Netflix for streaming in 2013, up from 21 per cent in 2012.

About 100,000 fewer Canadian households subscribed to a cable TV or satellite plan last year, though 11.92 million were still paying for packages.

Those figures have pushed Canadian companies to defend their turf by locking in exclusive agreements with U.S. media companies to ensure hit TV shows don't wind up on services like Netflix.

Last month, BCE's Bell Media (TSX:BCE) signed a deal with HBO that gives them Canadian rights to HBO's library of television shows, like "Sex and the City" and "The Sopranos."

A separate agreement for HBO Canada secured rights for all of the past seasons of HBO shows currently on air, like "Girls" and "Veep."

Both deals highlight the struggle between traditional broadcasters and newcomers who are searching for ways to vault the old model.

The CRTC is in the final stages of a major review of its policy framework for the TV industry, which has sparked passionate viewpoints over a potential pick-and-pay model for cable channels.

U.S. media giant Viacom made a submission to the regulator saying that unbundling cable packages would send the existing Canadian TV business into a "death spiral." The company threatened to take its content, which includes shows on Spike TV and BET, to a Netflix-like service if the CRTC opts for giving consumers the option to choose which channels they want.

However, more choice may come at a higher cost, said Duncan Stewart, a director of technology, media and telecom at Deloitte.

"This is not something that's just in flux in the United States or Canada, it's a global phenomenon," he said in an interview from France.

Stewart expects that Canadians may be surprised that unbundling cable channels, or paying for an over-the-top service, may be more expensive than they assume.

"We may see the price for many of the most-desired services — things like ESPN and HBO — are between $15 and $20 per month," he said.

"I don't think a whole lot of people are prepared for that."