Cable and Satellite Television Industry 2007

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Cable, satellite and multipoint distribution systems, 2007

The statistics presented in this bulletin are for the year ending on August 31 and for the period from 2003 to 2007. The following text contains references to previous periods when it is useful to set the industry's recent performance in a historical context.

A decade of competition and innovation in the cable and satellite television industry

In 1995, the Canadian Radio-television and Telecommunications Commission (CRTC) authorized two new Canadian satellite television services. This decision was intended to introduce "competition in delivering programming services to the home" and "broaden consumer choice by providing an alternative to cable" as well as to provide "flexibility for the competitive introduction of new digital satellite technology." ¹  In 1997, two direct satellite television undertakings were launched, and other competitors using terrestrial wireless technologies followed suit.

The competition is now well entrenched, as attested by the fact that the wireless providers of programming services had 2.7 million subscribers as of August 31, 2007, representing one-quarter of all subscribers to television programming services.

As well as leading to the transformation of the programming services market as a whole, the implementation of this policy triggered a restructuring of the cable television segment of the industry. At that time the industry offered subscription television services only. This market had reached maturity, and growth in the industry's revenues depended primarily on bringing in new households and selling more expensive packages. The arrival of competitors in the market once occupied by cable operators alone made this business model obsolete.

To compensate for the customers that would inevitably be lost in their traditional niche, cable operators have since deployed over time bi-directional broadband networks that offer a full range of digital video and telecommunications services. In so doing the industry entered into competition with well-established businesses in the telecommunications sector, first in the Internet market and more recently in the telephony market.

The strategy of making technological upgrades to networks and diversifying the services offered is now well established and is the very cornerstone of the industry's growth. It serves to create customer loyalty, attract new customers and increase subscription revenues.

Many new customers for cable operators

The number of subscribers served by cable operators – all services combined ² – reached 14.2 million as of August 31, 2007, or 1.6 million more than on the same date in 2006. The 12.3% growth in subscriptions was somewhat lower than that realized from 2005 to 2006, but was nonetheless the second highest of the past 30 years.

More than half of all new customers are subscribers to telephony services. The industry had 1.8 million such subscribers in August 2007, nearly double the number in 2006 and nine times more than in 2005, the year in which the largest cable companies entered the market. ³  The industry continued to broaden the footprint of its telephony services, with the number of potential customers increasing from 8.4 million in 2006 to 10.1 million in 2007. This represents 80.3% of homes with cable access.

Canadian households and businesses also continued to connect to cable Internet in large numbers, although at a slower pace than in the past. The number of subscribers to such services rose from 4.0 million in 2006 to 4.5 million in 2007, a 12.5% increase. The majority of cable homes (97.0%) are now able to subscribe to such services if they so wish.

Growth in the traditional niche of television services has been much more modest. The industry nonetheless experienced a net increase of close to 127,000 subscribers (+1.6%), the second best result (after that posted in 2006) since the beginning of the decade. The relatively high and stable penetration rate for subscription television services limits opportunities for growth in this market.

The rivalry between cable companies and wireless service providers over attracting customers during the past decade has seen the latter come out ahead. However, cable companies maintained their market share in 2007 for the first time in ten years.

Continually declining dependency on television and increasingly lucrative customers

The advent of large numbers of customers to the Internet and telephony niches has led to considerable changes in the structure of the cable industry's operating revenues within a relatively short period of time. Subscription revenues from non-traditional services accounted for 39.4% of all subscription revenues for the industry in 2007, as compared with 24.3% in 2003 and 3.8% in 1999. Those revenues rose by 32.2% in 2007 to 2.7 billion, while those from subscriptions to television services came in at $4.1 billion, a more modest 6.4% increase.

One of the objectives behind the development of the cable operators' business model was to increase revenues per subscriber to basic services. This mission was accomplished, given that in 2007 each subscriber brought in an average of $907, double the corresponding figure at the beginning of the decade.

Digital television winning converts

While the total number of cable television subscribers is slowly increasing, the number of digital cable television subscriptions has been growing steadily. As of August 31, 2007 there were 3.3 million digital cable television subscribers (+20.2%), representing four out of ten cable television subscribers.

If we add digital cable television subscribers to those subscribing to wireless digital television (satellite and wireless cable), close to six out of ten have chosen digital. This rising popularity of digital technology augurs well for the marketing of new generation services, including high-definition television and video on demand.

Significant gap in profitability of major segments of the industry

Cable operators earned $1.6 billion in 2007, or 22.2 cents in profit for each dollar in revenue, thereby generating profits of more than 20.0 cents per dollar of revenue for the fourth straight year.

Wireless service providers posted $96.0 million in earnings before interest and taxes for a 5.0% profit margin. This marked a reversal for this segment, which had suffered losses before interest and taxes every year since its launch in 1997 until 2005.

New competition ⁴ 

In recent years, thanks to digital technology, some telecommunication carriers have been offering television services via telephone lines. They had attracted just over 166,000 customers to this service as of August 31, 2007, most in western Canada. Despite the rapid growth in this segment (+ 42% in 2007), it still accounts for less than 2.0% of the market as a whole.