Cheap internet, television help VMedia challenge Canada’s big three telecom giants

While Canadians are often frustrated with the country’s big media and telecommunications companies, it seems those companies are just getting bigger and bigger, often acquiring rivals left and right. For example, earlier this week, BCE gobbled up MTS in a deal worth billions.

However there are startups nipping at the heels of Bell, Rogers and the other big telecommunications brands and many aim to offer some or all of their services at a fraction of the price. One of those companies is Toronto-based VMedia, which says it aims to give Canadians choice, flexibility and innovation.

Launching roughly three years ago, it offers home phone, internet and most notably television service, and the company says it’s the only “triple-play” provider that’s able to compete with the major companies in all three of those telecom industries. Offering the combination of home phone, internet and television services is something the company’s founders believe makes it easier for them to sway customers from their bigger competition.

And VMedia has put up quite a fight against the big guys over the years. They notably took on Bell when they were in the process of buying Astral, and now they’re in a middle of a fight with the telecommunications giant over what they believe could lead to a Bell monopoly in the fibre internet market. That monopoly, if it is allowed to happen, has the potential to put VMedia out of business.

What has put VMedia on the map, however, is their TV service, which uses Internet protocol television (IPTV) technology.

But VMedia isn’t alone in delivering television that way. Big players are starting to use the technology, too. It’s what powers Bell Fibe TV, and Rogers has announced that it will launch an IPTV service this year.

The thing that manages to make VMedia distinct from its competitors is its VBox, which replaces the chunky set-top boxes from traditional cable and satellite companies with an Android-based, Roku-like box that runs their own firmware, has the option to record shows on SD cards, hard drives and USB sticks and has access to apps on the Google Play store. The VBox’s remote doubles as a Wii Remote-style controller to play games and surf the web, and it also includes a keyboard at the back for quick text entry.

If that sounds too good to be true, there are some caveats with the VBox, notably that it lacks key features found in the top-of-the-line PVRs, like picture-in-picture or the ability to record several shows at once aren’t available with VMedia or the VBox. The picture quality leaves much to be desired as well. While Rogers and Bell are moving on to 4K TV, VMedia is stuck with 720p, which is already a step below the 1080p HD standard.

It wasn’t VMedia’s unique box that first captured the attention of Canadians, however: VMedia was one of the first companies to give its customers the option of a “skinny basic” package and the ability to pick and pay for the channels they’d like. It’s now something that the major cable and satellite companies are begrudgingly offering Canadians after a CRTC mandate.

VMedia’s TV service is only currently available in Ontario, but they have plans to soon launch it in B.C., Alberta, Manitoba and Quebec.

So why aren’t all Canadians clamouring to adopt this alternative to the traditional cable and satellite providers? The reality is, going with a startup may land you with many of the same problems you were trying to avoid. VMedia, for example, has faced harsh criticism online from customers who have complained about the customer service, several TV and internet glitches and even price hikes, which already plague the big guys.

To learn more about competing against Bell and Rogers, winning over customers, pick-and-pay TV and their growing pains, Yahoo Canada Finance spoke with VMedia co-founder George Burger.

Yahoo Canada Finance: What are some of the challenges that VMedia has faced?

George Burger: The challenges have been unbelievable, because I think in the best of circumstances when a start-up business is disruptive and the businesses that it tries to disrupt are easily the biggest businesses in Canada, you’re going to face some significant challenges.

But then it’s compounded by the fact that much of the source of supply that we use to sell to our customers — for example, television shows or internet bandwidth — we have to acquire from the very people that we’re competing against…These are issues we’ve slowly managed to overcome, but it has taken a tremendous amount of work.

Similarly on the internet side, we provide home internet service, and we acquire bandwidth from the major facilities-based providers, and again, we’re dealing with people who we do business with on the wholesale side, and we compete with them on the retail side. These things make for an exciting business to be in.

On top of everything else, we’re dealing with an industry in major, major transition: the TV industry. To be dealing with all of that at once, it makes for a very exciting startup business opportunity.

YCF: How much of a fight was there with the CRTC and even the big media companies to get VMedia off the ground?

GB: The CRTC itself has been pursuing a mandate of trying to pursue competition and choice, so in that regard VMedia has not faced regulatory challenge in that respect. I don’t think that’s really the issue.

Typically with the CRTC, the strategies and tactics of the large companies really don’t go into the regulatory arenas because it’s too much of a David and Goliath type of situation where they would not necessarily come off looking well in the regulatory arena.

In the commercial arena, of course they do what ever they can to complicate the lives of independent providers like VMedia. Not all of them. I shouldn’t paint such a broad brush, but there are some that are easier to deal with, but nobody [the incumbent companies] is particularly keen about our presence in the market.

It’s not just the question of whether we take customers away from them, we also provide a form of market and pricing discipline. If our prices deviate too much from theirs, then they do have market share issues. To some extent they’d have to moderate their prices because of the existence of the independent market.

That’s really the issue: To what extent can they avoid having to reduce their prices just because there’s a competitor out there. It’s not necessarily so much that they are going to lose customers, although they will lose customers, but that’s not the biggest concern. The biggest concern is that they may have to moderate their prices. Of course in a monopoly or duopoly, you have less of a concern about that.

YCF: Why do you believe we haven’t seen more companies like yours?

GB: With television, you introduce a layer of complication that relates to the technology. To deliver TV in a way that’s pleasing to the consumers with the limited bandwidth that’s available to ISPs is a real challenge, and replicating set-top box technology, being able to provide everything that TV customers have taken for granted, is much, much more complex than providing internet service.

The second thing is the programming challenge of being able to negotiate suitable agreements with the big content providers, again, providers which in some cases are really not keen to provide you with their services and products because they’re competing with you on another level. Third, there’s also a far more complicated sales and marketing approach that comes with television. These are really the major factors that make television much more complicated.

You can quite literally tomorrow very quickly and at very little cost put together the technology and the equipment that you need to be able to provide internet services, but that’s not the case with television. The period for starting up a TV company, assuming that you have the capital and talent, it takes years to do it successfully. I think that’s the big challenge.

YCF: How do you market VMedia to attract new customers?

GB: We started out with a front page story in ROB [Report on Business] the day we launched, and so that gave us a great, great start.

I also spend a lot of time on social media in forums and blogs, talking to consumers and letting them know, especially consumers who were already interested in independent ISP services. This is kind of a natural market for people who would be interested in independent TV services. I did an awful lot of social media work and have been and continue to do so. We were also doing online advertising, primarily Google, but not very much.

Almost all of the growth has been through word of mouth. We’ve spent very little money on advertising. What’s that expression? “Necessity is the mother of invention?” The reality is that we simply don’t have deep pockets to be able to do the kind of market saturation advertising that a lot of other providers are able to do, so we’ve made it virtually out of necessity.

But we’ve been grateful for the support we’ve got from our subscribers through thick and thin. We’ve had very supportive people. This has been a beta period, like any technology company. We’ve had our ups and downs. They’re all behind us, but people have stuck with us. We’ve had a very, very supportive and loyal subscriber base.

YCF: How have customers responded to your Internet, TV and phone services so far? Has it been positive? Have you had some rough patches?

GB: Overall we’ve had a very, very supportive base. We have a lot of long-standing customers given our short history.

Yes, we have had some rough patches as we’ve developed our product. We have a very sophisticated set-top box, our VBox, which is a combined set-top box and media player. It’s an Android-based product, which from time to time requires updates. There have been situations in the past where we had update issues, but we have smoothed that out completely and we’ve moved past all that.

What I consider to be our beta period is behind us, even despite that, our customers have been extremely loyal because they want us to succeed. They are very, very happy to be able to benefit from an alternative.

YCF: VMedia was one of the first companies to offer the pick-and-pay option. What can you tell us about getting that started?

GB: When we launched, our whole point, our whole mantra was that we’re going to try to give you as small an entry package as possible. We’re going to give you small theme packs, and we’re going to give you as many standalone and pick-and-pay channels that we possibly could.

What has changed of course is that the CRTC has mandated that all companies make their channels available at some point, very soon, on a standalone or pick-and-pay basis, which is fine. We were pioneers in that regard. We were also pioneers in launching TheSkinny. The skinny basic package, which we call TheSkinny, was required to be launched by the CRTC by March 1 of this year, and we launched it last June. We got a jump on the market. We were the first ones to test it out and the reason was because we wanted to be able to offer choice.

Bottom line, we just want to be friends with our customers.

YCF: Have you seen many customers take Skinny Basic and one or two channels?

GB: No, there has been very little movement down, very, very little trading down, more importantly, however, this may be a measure of success of the new policy, we are finding people who are coming into the television ecosystem because of the availability of a skinny.

If you’re somebody who thought ‘I’m going to stick an antenna on my roof, and I’m going to get all the over-the-air channels’ — easier said than done. It’s not always the best quality, but now at $17.95, it’s not that bad. It’s a good enough price point. You don’t have to bother with your antenna, weather and all those other issues. Now you can have all that stuff that you thought you would be able to get for free for nearly free. $17.95 is a great entertainment value for what you get.

So people are coming back into the system. These cord-cutters, these near cord-cutters, they’re finding it worthwhile to try out the skinny model and that’s very beneficial to the TV industry.

This interview has been condensed and edited.