Tt was an inauspicious start to the 40th anniversary of Canada’s cable industry. North America’s cable king, Ted Turner, was the keynote speaker at the industry’s annual convention in Toronto, and in his rambling remarks, he managed to deliver two clear messages to the 1,500 rapt delegates who turned out to hear him. First, American billionaires don’t have to be gracious or well-prepared for speeches in Canada. Second, the Canadian cable industry is in for the ride of its relatively short life.
According to Ted Turner, the cable industry has a great deal to worry about—rather, he said, like Poland in 1938, with Germans on one side and Russians on the other. He urged Canada’s 200 cable companies to diversify, “because you don’t want to sell pencils on the street in your 60s.” In a pinch, they should sell to any buyer—including cable’s new competitors, the phone companies—“because you want to leave the Titanic while it’s still at the dock.” Finally, he noted that the best way to get rich is to have a monopoly.
Those days, however, have passed for Canadian cable operators. On May 1, Ottawa deregulated the local phone market, allowing that industry to enter cable for the first time, and cable companies to branch out into phone service. Both sides claim to be pleased with the move. But Turner is right: the cable sector has several reasons to worry.
Perhaps the biggest hurdle is consumer hostility. Research by pollsters at Strategic Counsel Inc. indicates that cable companies are on par with the supremely unpopular chartered banks, big oil companies and the federal government. Only 64 per cent of those surveyed had a favorable view of cable companies, whereas 83 per cent have warm feelings towards cable’s archrivals, the phone companies.
For one thing, Canadians are still cross over the cable industry’s 1995 attempt to impose negative-option billing—which would
have forced subscribers to pay for new channels unless they phoned or wrote their cable company to cancel them. They also dislike being forced to buy bundled services. More than 80 per cent want more choice in selecting and paying for cable channels.
It is clear that Canadians take their television very seriously. And it’s going to take some equally serious hustling to overcome cable’s negative aura and monopolistic past. Success or failure will depend on the industry’s ability to shake its frumpy image, to develop and market a successful “brand product.” Even though 8.2 million of Canada’s 10.6million households are hooked into cable, it is, with the arrival of competition from satellites, increasingly a discretionary service. Rather than appealing to increasingly fickle customers to stay faithful for old-time’s sake, cable companies have to make customers consciously choose the service.
One question is whether cable companies can even afford to make the investments that will be required to change their image and upgrade their existing networks. Four of the largest industry players have highly leveraged balance sheets. Furthermore, network upgrading will not be a onetime thing. It will take constant, significant re-investment to keep up with the rapid pace of technological change.
Bell Canada and other phone companies are formidable rivals. Spurred by competition in the long-distance market, Bell is transforming itself into a lean, leading-edge operation. It also has a secure toehold in the direct-to-home broadcast satellite niche, with its investment in ExpressVu. And when it comes to cable, the phone companies form a unified front, unlike the fragmented, family-dominated cable industry.
As cable companies gird themselves for an uncertain future, Ted Turner’s dismissive remarks at their convention may prove surprisingly resonant. The industry’s challenge now is to prove him dead wrong.
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