Can BCE Inc. Really Compete With Netflix Inc.?

While BCE Inc. (TSX:BCE)(NYSE:BCE) is having some decent success with its Crave video-streaming service, it’s going to be hard to beat Netflix Inc. (NASDAQ:NFLX).

| More on:
The Motley Fool

Now that the Shomi joint venture between Shaw Communications and Rogers Communications has officially bitten the dust, the video streaming war in Canada is down to just two major combatants.

In one corner is Netflix Inc. (NASDAQ:NFLX), the 800-pound gorilla in the room. Not only does the popular streaming service have hundreds of popular television shows and movies, it also is reported to have spent US$6 billion on its own content in 2016. It plans to spend a similar amount in 2017.

Netflix’s chief rival in Canada is Crave, a video streaming service owned by BCE Inc. (TSX:BCE)(NYSE:BCE). Crave does have a number of television shows Netflix doesn’t because BCE’s cable networks have exclusive rights to show these programs in Canada. Crave has popular titles like South Park, Star Trek, and, one of my personal favourites, Billions. It’s a big differentiating factor between the two services.

One of the reasons Shomi shut down is because Crave was quickly becoming the go-to choice for Canadian streamers. Crave recently surpassed the one-million-customer mark. BCE has been Canada’s largest cable provider since 2015, and it has leveraged that position to convince subscribers to sign up to Crave, including offering the video-streaming service as part of certain cable packages.

That seems pretty impressive until we take a closer look at Netflix’s results in Canada. It’s estimated about 5.5 million Canadian households have a Netflix subscription.

Room for both?

It’s not all bad for Crave. Sure, it’s getting crushed by Netflix, but subscriber count does keep ticking up each quarter.

We all know Canadians are cutting the cord, and quickly too. It’s estimated that 200,000 Canadian households will get rid of cable in 2017 after similar numbers ditched it in 2016. This trend will likely slow over time as millennials start forming their own households in a big way, but there’s no doubting the overall direction we’re going in.

But it’s not all bad for Canada’s telecoms. They’ve been able to push through price increases to existing cable customers, although that pricing power won’t last forever. Internet pricing power should be much better, since so much of our entertainment is now online. And if millennials skip out on cable, they’re more likely to pay more for faster internet.

Keep in mind that video streaming is comparatively cheap, at least compared to cable. It’s $9.99 per month to subscribe to Netflix, while Crave is even cheaper at $7.99 per month. Canadians can subscribe to both for less than the cost of a basic cable subscription. Which is what many do, including my family.

There’s plenty of room for both services to continue growing and no reason why Netflix subscribers won’t at least consider adding a Crave subscription.

More competition is coming

BCE might have more to worry about more than just Netflix., Inc. (NASDAQ:AMZN) just announced it is moving its Amazon Prime video service to other countries, including Canada.

Like Netflix, Amazon is investing billions of dollars annually towards its own content library — programs that are gaining the attention of Hollywood’s elite. Some of the best critically acclaimed shows are coming from Amazon, including The Man in the High Castle, Transparent, and Mozart in the Jungle.

This highlights one of the big differences between Crave and Netflix/Amazon. The latter two options have many of their own titles and are spending aggressively to create more. Crave has a grand total of one show exclusive to Crave. That’s a big drawback, especially as new programs from Netflix and Amazon gain popularity.

The bottom line

Crave TV’s growth is important for BCE. Although it’s still a small part of the company today, it should continue to grow as more people ditch conventional TV for good. But it’s going to be tough going up against two competitors who are collectively spending close to US$10 billion a year on programming.

If I were looking to invest in streaming video, BCE would not be my first choice. It’s still a fine telecom, but it’s hard to compete against Netflix and Amazon.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns Shaw Communications preferred shares. David Gardner owns shares of and Netflix. Tom Gardner owns shares of Netflix. The Motley Fool owns shares of and Netflix.

More on Dividend Stocks

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

Retirees: 2 On-Sale TSX Dividend Stocks to Buy Now for Passive Income

These top TSX dividend stocks now offer 6% yields.

Read more »

Payday ringed on a calendar
Dividend Stocks

New Investors: The 3 Best TSX Dividend Stocks for Monthly Cash

New investors looking for monthly dividend cash are in luck! Here are three attractive Canadian dividend stocks for growth and…

Read more »

A worker gives a business presentation.
Dividend Stocks

3 Dividend Stocks You Can Safely Hold for Decades

Here are three of the safest Canadian dividend stocks you can buy right now to hold for decades.

Read more »

Red siren flashing
Dividend Stocks

Buy Alert: This Energy Stock Is Unstoppable After Strong Results

Tourmaline Oil (TSX:TOU) beat earnings and looks unstoppable.

Read more »

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

2 Safe Dividend Stocks to Beat Inflation

Canadian investors, young and old alike, can cope with or even beat inflation by owning two safe dividend stocks.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Canadian Dividend Stocks (With +6% Yields) You’ll Regret Not Buying at These Prices

TSX dividend stocks such as TC Energy and TransAlta Renewable are well poised to deliver consistent returns to long-term investors.

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

2 TSX Stocks With Market-Beating Potential

Even in the current economic environment, long-term investors have a great chance of beating the market. Stocks like CN Rail…

Read more »

consider the options
Dividend Stocks

Is BCE or Enbridge a Better Buy for Passive Income?

BCE and Enbridge offer attractive dividend yields. Is one a better buy for TFSA passive income?

Read more »