BCE’s Puzzling Stab at Convergence

Over the past couple of days, I’ve been reading and thinking a lot about BCE’s decision to acquire of all CTV – a decision apparently inspired when BCE CEO George Cope watched Canada’s women’s hockey team win Olympic gold on his wireless device – a moment he described as when the “penny dropped”.

It’s a move that obviously has convergence written all over it based on the idea that owning CTV will let BCE exclusively distribute content to its wireless, IP-TV, satellite and customers. This is yet another strategic makeover for BCE, and something that bleeds of competitive scrambling, if not desperation.

In theory, this will achieve three things:

1. It will make BCE’s distribution channels more valuable
2. It will give BCE a golden opportunity to squeeze more dollars from its customers
3. It will help BCE customers who want CTV content away from Rogers, Videotron and Shaw, as well as keep its own customers who have been fleeing to Rogers and Videotron in Eastern Canada.

On the surface, it may seem like a solid strategic approach but my take is the same flaws that doomed the original convergence movement will inevitably doom Convergence 2.0.

The biggest problem is consumers want content neutrality. Consumers want to get content when, where and how they want it. They don’t want to have to be a customer of a certain carrier or cableco to get content. Instead, they want to pick and chose their content – be it from Hulu, Netflix, CTV, CBC, NBC or Apple.

What consumers are willing to pay for – and even pay a premium to get – is a high-speed connection so they can access the content they want. It’s one of the reasons why high-speed ISPs have been able to raise prices and create different tiers of service with little resistance from consumers.

This is particularly true in Canada where high-speed competition doesn’t exist. In most markets, there’s friendly competition between the carriers and cablecos. While speed is often used as a competition differentiator, price is something that rarely, if ever, comes into play, probably because the margins on high-speed are so sweet that the carriers or cablecos don’t want to kill the golden goose.

Given this oligopolistic landscape, BCE didn’t need to purchase CTV. But George Cope probably believed he had no choice given his many of his major rivals own content: Shaw owns Globe TV, Rogers owns SportsNet, CityTV, Omni and a stable of radio stations and magazines, while Videotron has access to Quebecor’s media portfolio.

If anything, it speaks volumes about Canada’s media and telecom landscape in which cross-ownership has been allowed to thrive even at a time when the Internet has let more content than ever be available to any one with an Internet connection. At the same time, Canada’s digital border is alive and well, which explains why we still don’t have access to services such as Hulu and Pandora.

The only losers in this growing content contest between the cablecos and carriers are consumers, who may be forced to dance with specific partners as opposed to have a dance card that lets them choose whoever they want.

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  • Bryan McCaw

    Good summary Mark. I agree that consumers will not change carriers for access to a particular show and demand content neutrality.

    I think the real reason for this move was to have negotiating leverage when it comes to content sharing agreements with the other carriers. At this time it looks like Telus is the odd man out.