Can Shomi Kill Netflix (NFLX)?

It has a shot -- at least in Canada

By Brad Moon, InvestorPlace Contributor

Netflix (NFLX) is the big name when it comes to streaming video service, with more than 50 million subscribers in over 40 countries, apps for virtually every connected device imaginable and a huge content library.

Source: Shomi

Competitors like Hulu and Amazon (AMZN) Prime have failed to derail the NFLX train, but there’s a new video streaming service on the prowl named Shomi that could steamroll Netflix.

At least in Canada.

What is Shomi?

Shomi is a video streaming service designed specifically to be a NFLX killer in Canada. It’s a joint venture between Rogers Communications (RCI) and Shaw Communications (SJR) and leverages the two telecommunications giants’ positions as broadcasters, content creators and ISPs.

Shomi launches in November at $8.99 per month — exactly the same price NFLX will be charging for new subscribers.

Netflix will hold the initial advantage in terms of sheer numbers: 3.5 million Canadian subscribers, and more than 4,000 TV shows and movies available. Shomi will provide 340 TV series and 1,200 movies to a yet-unknown number of Canadians.

However, Shomi leverages the position of RCI and SJR as broadcasters, with exclusive Canadian rights to popular American TV series not available on NFLX. The CBC lists a number of shows, including Modern Family, The Strain and American Horror Story that will be available to Shomi customers but not Canadian NFLX subscribers.

Shomi also is pushing content recommendation as an advantage. Instead of using an algorithm to come up with suggestions like NFLX does, Shomi will use a team of human curators who offer up picks — a throwback to the video store days when clerks would offer their favorites to customers.  The curators also are expected to include the occasional celebrity.

Rogers and Shaw

Rogers is the country’s largest wireless provider with 9.5 million subscribers (in a country with a population of 35.4 million), 2 million broadband Internet subscribers and 5.2 million cable subscribers (out of roughly 12 million for all of Canada). Rogers owns Canadian broadcast rights to many popular TV shows, and the Canadian Press reports the company went on a buying spree, spending $100 million on content for Shomi.

Shaw is not a wireless carrier, but SJR counts 1.98 million cable subscribers and another 1.92 million Internet subscribers making it a big player, especially in western Canada.

Together, these Canadian behemoths can pull a lot of weight.

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In the spring, NFLX agreed to pay Comcast (CMCSA) to boost the streaming speed of Netflix video to Comcast customers. Well, speed manipulation of broadband Internet content is a thing in Canada too.

Rogers, in particular, has been singled out for throttling web traffic, including online games, BitTorrent streams — and NFLX. Netflix Canada publishes ISP speeds and ranks RCI as the slowest of the major broadband Internet providers (SJR is slightly better).

The potential is there for Shomi to enjoy a speed advantage, pushing Netflix customers (who are tired of waiting for content to buffer) into the waiting arms of RCI and SJR.

Obstacles for Shomi

Shomi is shaping up to be a potential Netflix killer in Canada, but there are also challenges to overcome. Among them:

  • Shomi will be available only to RCI and SJR customers.
  • While Shomi will offer popular content that Netflix Canada lacks, there’s no getting past the fact that NFLX enjoys a significant advantage in library size.
  • Shomi is accessible through fewer devices than NFLX — mobile, tablet, web, cable box and Microsoft’s (MSFT) Xbox 360 — leaving out key platforms like Apple (AAPL) TV, Sony’s (SNE) PlayStation and smart TVs.
  • Converting NFLX Canada subscribers to Shomi means convincing them to either give up NFLX altogether, or pay for two streaming services.
  • Bell Canada (BCE) is preparing its own Netflix competitor.

Then there’s the elephant in the room.

Netflix Canada offers roughly half the content that NFLX in the U.S. does and that results in a certain amount of resentment among Canadian Netflix subscribers. Most of that discrepancy has to do with Canadian broadcast rights (some locked up by RCI and SJR), and Shomi is leveraging this to win.

However, as pointed out by Cantech Letter’s Nick Waddell, nearly one-third of Canadian NFLX subscribers are using a VPN service (which blocks their country of origin) to tap into the U.S. Netflix library.

That means a big chunk of those Netflix customers not only have access to the massive U.S. NFLX library, but some of the Canadian exclusives being touted by Shomi as a reason to switch are already available to them.

Bottom Line

Will Shomi succeed and beat back Netflix in Canada?

There’s no arguing the fact that NFLX is a giant and has huge momentum in Canada. But Shomi has the muscle of two of Canada’s biggest telecommunications players behind it. Shomi also will include 30% Canadian content — a factor RCI and SJR will undoubtedly be pushing if regulators raise eyebrows because of any perceived favorable treatment of Shomi streams over Netflix on the two carriers’ networks.

Rogers and Shaw also will have the ability to bundle Shomi with their other services or exclude its content from download caps to make it more attractive.

Ultimately, Shomi won’t be able to kill NFLX in Canada — not while the video streaming service is limited to RCI and SJR subscribers.

But with a big marketing push and an ongoing commitment to adding content, Shomi is positioned to steal customers and deal Netflix a serious blow in Canada.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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