Monday, December 12, 2011

Carrier strategy against OTT: vertical integration

In an interesting new development, Bell and Rogers, respectively 29 and 36% market share of the Canadian wireless market and fierce domestic competitors, join forces to acquire a majority share (75%) in Maple Leaf Sports and Entertainments (MLSE) for $1.32Bn.

Bell had already started vertical integration by acquiring the remaining 85% of CTV for $1.3 Bn last year and owns also  TSN, TSN2 and NHL Network Canada as well as a minority share of NHL's Montreal Canadien. Rogers owns the Toronto Blue jay baseball team and the broadcast network Sportsnet.

MLSE provides Bell and Rogers with co-ownership of Toronto Maple Leaf NHL team, Toronto Raptor NBA team, Toronto FC MLS team and the Air Canada center.

This is a very good example of vertical integration. The Canadian market is fairly mature, but with a high broadband penetration and a relatively low mobile broadband penetration (75%), growth is coming from smartphone and media consumption. Rogers, with 44% smartphone market share and a blended ARPU of 60$ and Bell with 26% market share and 53$ ARPU are among the most profitable carriers in North America.

At the same time, as competition increases with wireless new entrants (Videotron, Wind, ...) and OTT offers (BBC iPlayer, Netflix...), Rogers and Bell understand that the key to profitability is content. Buying these sport teams is a way for Bell and Rogers to secure premium attractive content for their domestic market, retaining control (duopoly?) of the most sought after premium content franchises in Canada.

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