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Cable Technology Feature Article

October 15, 2013

Canada Pledges to Move to a La Carte TV Subscriptions

By Tara Seals, TMCnet Contributor

Canada has taken another step towards a la carte television packages: the country's industry minister said that regulators will soon require cable and satellite operators to allow consumers to pick and choose the channels they want in their package.

"We don't think it’s right for Canadians to have to pay for bundled television channels that they don't watch. We want to unbundle television channels and allow Canadians to pick and pay the specific television channels that they want," Industry Minister James Moore said, speaking on CTV's Sunday-morning news mainstay, "Question Period."

Canada already has a somewhat a la carte scheme in place in the wake of the Canadian Radio-television and Telecommunications Commission saying that it "strongly encouraged" new, more flexible packages. Viewers are able in many places to start with a very basic TV offering that includes the main broadcast channels and a few other things, and then add additional small groups of cable networks that are organized topically. It’s not true a la carte, but it’s much closer to it than anything in the United States.

Pay-TV distributors say that content bundling practices force them to take channels they don’t want and can’t monetize, in order to gain access to top-rated cable nets. Cablevision Systems has taken that grumbling to the next level for instance with an antitrust lawsuit against Viacom (News - Alert), accusing the media giant of demanding a $1 billion penalty if the MSO did not agree to Cablevision to carry and pay for 14 unpopular networks, such as Palladia, MTV Hits and VH1 Classic, along with must-have networks such as Nickelodeon, MTV and Comedy Central.

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Because of that practice, say that neither choice nor pricing will improve under an a la carte plan.

 “Consider the microeconomics of the matter: the cable operator will have to offer the channels individually, but it will still have to pay for many channels en bloc, which means that someone will still have to eat the cost of the unpopular channels,” explained the conservative-leaning Heartland Institute, in a blog. “That unlucky party will be the consumer, because what the cable operator will have to do is price the individually offered channels and/or customized tiers at a level that will ensure a profit or go out of business.”

Or, they may just raise prices on popular channels. For instance, pay TV providers pay ESPN (News - Alert), the most expensive network in the history of pay-TV, more than $5 per month per subscriber. That’s because live sports is one of the only arenas that offers true differentiation for traditional TV in courting advertisers and positioning themselves against over-the-top alternatives. Forbes estimates that the network brought close to $11 billion in revenues for parent Disney (News - Alert) in 2012.

However, only about 25 percent of cable subscribers actually watch ESPN – meaning that under an a la carte model, operators would be left with the challenge of paying for ESPN on the back of 75 percent less of a paying customer base, sending the per-channel pricing up to, in theory, $20 per subscriber per month. That’s clearly unfeasible, meaning that pay-TV will have to perhaps throw other channels into an ESPN package to justify its pricing…which gets up right back to content bundles. Or, Disney could push back on the amount they spend on sports broadcast rights, a process that would have big ramifications for teams and the sports business model as a whole.

In fact, many channels don’t have the mass appeal to support them financially. Needham Research estimates that moving to a purely a la carte model would eliminate $70 billion in revenue for the U.S. TV industry and that fewer than 20 U.S. channels would survive if consumers had to pay for each one separately.

Moore said that Canada’s incoming new Conservative government is mulling other moves aimed at consumer relief. "We also think that roaming fees are too high in this country. We know that there's going to be a new regime put in place in the first week of December to cap international roaming fees, but we also want to move on domestic roaming fees as well," he said. "These are things...on which our government is going to take action."

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