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Rogers Communications to Close Video Streaming Service

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Rogers Communications Inc. (RCI - Free Report) , the largest integrated telecom operator in Canada, has decided to discontinue the Shomi video streaming service from Nov 30, 2016. Shomi is a joint venture between two traditional rivals in the Canadian telecom market, namely Rogers Communications and Shaw Communications Inc. (SJR - Free Report) . Shomi became operational in Aug 2014.

As a result of the shutdown, Rogers Communications will incur a loss of C$100 million to C$140 million ($75 million to $105 million) as experiment costs in the third quarter of 2016. Shaw Communications wrote down its part of the joint venture in Jul 2016, incurring a C$51 million accounting charge. Meanwhile, BCE Inc. (BCE - Free Report) , a major Canadian telecom operator and media company, has also launched its own video streaming service, CraveTV.

The main reason for the discontinuation of the Shomi video streaming service is the competitive threat from the U.S.-based video streaming service provider Netflix Inc. (NFLX - Free Report) , which also has a strong presence in Canada. Shomi service was offered at a Canadian dollar less than Netflix, yet it could not match the latter’s standard. Netflix continued to expand rapidly in Canada. On Jun 2016, research firm Solutions Research Group reported that Netflix has 5.2 million Canadian subscribers compared with a meagre 700,000 (excluding the users who got the services free as part of their cable packages) for Shomi service.

Notably, low-cost video streaming service providers like Netflix have become a major threat for legacy cable TV operators. These online videos provide an extremely cheap source of TV programming, unless the customer is eager to view real-time programs like sports events. This business model is gaining momentum as cord-cutting has become more widespread in the U.S.

Importantly, Rogers Communications has decided to offer Netflix streaming services to its customers who signed up for a two-year contract for its new 4K TV offering. Rogers Communications currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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