January 14, 2015 / 2:48 PM / in 3 years

UPDATE 1-Shaw Communications profit drops on streaming startup costs

(Adds analyst comments, background and details)

By Alastair Sharp

TORONTO, Jan 14 (Reuters) - Canadian cable-TV operator Shaw Communications Inc reported a 7 percent drop in quarterly profit on Wednesday, hurt by a fall in video subscriptions and the costs of launching its new video streaming service.

Cable providers have struggled to respond to the popularity of cheaper online-only rivals such as Netflix, and Shaw said it lost C$13 million ($11 million) on the startup of its subscription video-on-demand service, called shomi, a joint venture with Rogers Communications.

It also pointed to higher amortization costs as contributing to the profit drop.

Shaw’s shares fell 2.1 percent to C$30.56 in early trade on the Toronto Stock Exchange.

The Calgary-based company’s net income fell to C$227 million, or 46 Canadian cents per share, in its first quarter, ended Nov. 30, from C$245 million, or 51 Canadian cents a share, a year earlier.

Revenue rose 2 percent to C$1.39 billion.

Analysts, on average, had expected Shaw to earn 51 Canadian cents a share on revenue of C$1.42 billion, according to Thomson Reuters I/B/E/S.

“These results make us wonder why Shaw is trading at a premium,” Canaccord Genuity analyst Dvai Ghose wrote in a note. “TV subscriber defense was better than expected and broadband growth was very strong, but Shaw is now losing telephony subscribers and satellite-subscriber results were very weak.”

During the quarter, the company lost almost 18,000 satellite video subscribers across its consumer and business units and shed 15,591 cable video subscribers. However, new Internet customers increased by more than 14,000.

RBC Capital Markets analyst Drew McReynolds had expected Shaw to add 8,000 Internet subscribers and 3,000 telephone customers while losing a combined 18,000 subscribers from its cable and satellite television offerings.

Shaw has avoided a price war with its biggest rival, Telus Corp, and has sought to highlight instead its network improvements and innovation in delivery of content and services.

The company bought U.S. data center services provider ViaWest Inc in September in a deal to bolster its cloud computing credentials that led to the creation of a business infrastructure services unit.

Shaw has sidestepped the wireless market, instead choosing to build a WiFi network that boasts more than 55,000 free access points for its customers, 600,000 of whom have registered to use the network.

Revenue for Shaw’s media division slipped on reduced advertising revenues and the sale of two cable channels.

The company raised its annual dividend by 8 percent to C$1.185 a share.

$1=$1.19 Canadian Additional reporting by Shubhankar Chakravorty; Editing by Saumyadeb Chakrabarty and Peter Galloway

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