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Cable Technology Feature Article

December 02, 2013

Canadian Regulators Want A La Carte Cable TV

By Gary Kim, Contributing Editor

It isn’t clear whether Canadian regulators will succeed in an effort to enable program network unbundling in the cable TV business in Canada. But there is a strong likelihood such rules would change the economics of the subscription TV business in Canada.

Some viewers probably would win, while others could lose, unless a bundled option were to continue to be legal as an option. Winners would be those viewers who really had high preference for only a few channels. Losers would include all viewers who watch 12 or more channels regularly, while some viewers would probably find they were paying just about the same as before.

The new rules would require cable TV providers to unbundle the television service they offer, allowing customers to pick and choose their channels, one by one.

In all likelihood, potential programmer and distributor loses could be substantial.

According to a study of the U.S. market conducted by Needham Insights, half the industry’s revenue—about $70 billion—would disappear if people didn’t have to pay for bundled television.

A bit less than half of that loss would probably be borne by distributions, and more than half by the networks. Needham Insights thinks only 20 U.S. networks would survive.

Given that fixed network operators rely on video revenues as a main contributor to gross revenue and profit margin, the economics of competitive local access markets would change significantly, making harder the task of earning enough money to fund gigabit networks.

Despite consumer expectations, it is likely that single channel prices will be higher than at present, in a fully bundled environment. “When buying less, the unit cost is going to be higher and overall savings, if any, may be small," Bell Media president Kevin Crull has said.

But other outcomes are possible, if not likely; Much would depend on whether the option to buy a traditional bundle remained, or whether all customers would have to build their own packages a la carte.

If users were allowed the choice of buying single channels, as well as a full traditional bundle, and some partially-customized bundles (news, sports, family), it is possible the financial damage to service provider distributors would be blunted.

In that scenario, revenue from heavy users would be unaffected. Some users with particular interests in news, sports, family programming or other major niches might find they pay slightly less. Some light users would pay less, but service providers might also retain customers they otherwise would have lost. The net effect would be negative, but not as negative as if all bundles were disallowed.

Canadian programming rules apparently allow Telus to offer a pared-down package to existing customers for $29 Canadian ($28.02) and then allows people to add channels for $4 each.

By doing so, Telus has nearly doubled its consumer base. Of course, Telus is an attacking provider, not an incumbent. So Telus has fewer legacy customers to lose.

Allowing people to buy television channels individually would almost certainly drive up the price of channels, though, as networks raise prices to cover lost advertising revenue they gain from wide distribution.

ESPN (News - Alert), for example, costs U.S. cable TV providers about $5.15 per customer each month. In an a la carte regime, ESPN might have to raise its prices to distributors to $13 per month to make the same amount of money, according to Nielsen.

Edited by Cassandra Tucker

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