January 2014
Volume 34 No. 1

January 2014
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Unbundling in Canada: When Breaking Up Is Hard To Do

By Isme Bennie

Why am I paying for cable channels I don’t want or ever watch? This is a common complaint/question, not just in Canada but all across North America, where in order to get a channel you really like, you have to buy a bunch you don’t.

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In Canada this issue is being addressed. Last October, the Canadian government announced that consumers should be allowed to choose the combination of cable channels they want. This government message was sent loud and clear to the CRTC, the Canadian Radio-television Telecommunication Commission, which was about to embark on hearings regarding the future of television. As most cable providers sell channels in packages, the CRTC has had to examine how cable packages could be unbundled, and what regulatory policies and administrative processes are necessary to bring about what is known as pick-and-pay or a la carte programming.

The effect of unbundling on the marketplace has been a topic of debate. Rogers, the country’s largest cable TV company, stated that it felt its customers were getting a good deal with the current system, but nevertheless responded immediately to the government’s call, saying that pick-and-pay could be in place as early as 2014, providing the CRTC ensured that the existing contracts between broadcasters and the cable companies allow for that sort of flexibility. (Rogers has previously experimented with customer choice and the Eastlink and Videotron systems already offer it.)

The reaction in Canada has been largely favorable. On the plus side, consumer-friendly customer choice will give broadcasters — whose revenues have been declining — a competitive edge over growing online services including Netflix with its flexibility and lack of regulatory constraints. John Cassaday, CEO of specialty channel owner Corus Entertainment, was quoted at the onset of the hearings as saying a la carte could lead to overall gains.

The Canadian Cable System Alliance is in favor of unbundling because increased choice will benefit underserved rural communities, whose choice of available communications services is limited. On the other hand, Friends of Canadian Broadcasting, an independent watchdog group, sees unbundling as an opportunity for cable companies to raise rates, citing in a press release that basic rates have increased by as much as 96 percent since 2002.

Specialty channels rely on subscriber fees to survive — more subscribers equals greater revenue. Some of their operators are concerned that in the new scenario, less-watched or niche channels may disappear. In a struggle for audience, those with reduced subscriber and advertising revenues will no longer be economically viable. From the viewpoint of the Canadian creative community, fewer channels could mean a reduction in the production of Canadian content and the percentage of Canadian programming channels are mandated to carry.

Leonard Asper, president of FN (Fight Network), and related sports channels, feels that legislation is not the answer, that a la carte is inevitable and that the system has been moving toward it gradually anyway. Technology has expanded viewer choices beyond just cable or conventional television.

Asper hopes that the CRTC, in its deliberations, has listened carefully and taken a measured approach to the issue, taking into account all the constituents, not just the consumer, and that the group is being careful not to put people out of work. He has been building his own “package” of niche channels focused on combat sports such as mixed martial arts, boxing and kickboxing. With its strong target audience and dedicated, efficient advertising, Asper believes it can stand on its own regardless of unbundling.

“Bundles provide value: lower cost for all channels that have lower subscription rates,” said Jay Switzer, industry veteran and chairman of the Hollywood Suite bouquet of movie channels.

“On the surface, the pick-and-pay alternative seems attractive: why pay C$90 to get 200 channels when you only watch maybe 10?” But, added Switzer, “Choosing only the ones you want may drop your bill from C$90 to C$60, but the channels drop from 200 to 15. Perceived value improves, you only get what you want, and your bill comes down. It may come down by 30 percent, but the number of channels you get may come down by 90 percent.”

Allowing consumers to buy television channels individually would almost certainly drive up the price of the channels that people actually want, Switzer said. His guess is that channel prices may increase from the current few cents per channel to perhaps C$3 or C$4 for smaller channels, and C$6 to C$8 per channel for very popular channels, especially sports.

In a random sampling of cable customers, several indicated they would be happy to pay only for those channels they want to watch, e.g. just the 12 to 15 of their choice. But their concern is that they could end up paying about the same as what they were paying before, and will have a lot fewer channels to show for it. So until the unbundled pricing is in place, it is still wait-and-see.

In the U.S., early in 2013, Arizona Senator John McCain introduced The Television Consumer Freedom Act, aimed at allowing consumers to buy cable channels on an a la carte basis. Also this past October, perhaps prompted by the Canadian discussion, the American Cable Association proposed a compromise to pure a la carte, called “a la bundle.” Recently, Comcast announced it will offer HBO subscriptions independent of the large, traditional packages that include channels like MSNBC and Comedy Central. This offer is likely just a trial and doesn’t indicate a move toward a la carte programming. However, depending on how the changes in Canada unfold, Canada’s neighbor to the south might find customer choice gradually becoming a reality, albeit a distant one. .