Industry contemplates ‘what if’ move to pick-and-pay TV

As the CRTC ponders the need for increased consumer flexibility in the broadcasting distribution market, industry players, experts and consumer interest groups say that moving to a "pick-and-pay" TV distribution model could make winners of consumers and losers of independent specialty channels. “For subscribers, I think it would be a real windfall. It would give them the choice to pick whatever they want to watch and pony up for that,” Dwayne Winseck, a professor and communications industry expert at Carleton University, said in an interview this week. Under a pick-and-pay model, TV subscribers would pay a monthly fee for basic television channels, plus additional, per-channel fees for only the additional services they want. “The problem is going to be for the lesser-known channels and program makers—the producers,” he said. Winseck said “lesser-known” specialty channels have often found a permanent home on many consumers’ dials after being forced into homes as a part of a basic TV subscriptions or a larger “tier” of channels. Without that forced exposure, he said, many channels fear they may never have the chance to draw potential viewers. They also worry that subscription and advertising revenues will fall as penetration rates decline, Winseck said. As a part of the CRTC’s new regulatory framework for vertically integrated broadcast companies, which own both broadcast and broadcast distribution assets, the CRTC ordered integrated TV distributors to file reports detailing their efforts to offer consumers more television packaging choice and flexibility. “With respect to the consumption of programming today, Canadians expect to be in control of what they watch, and these expectations are likely to be heightened with the ongoing transition to digital technology,” the CRTC said in its vertical integration ruling. “The Commission is concerned that the lack of choice and flexibility could motivate consumers to leave the regulated broadcasting system.” Companies filed their reports to the commission this month. Two of the four, BCE Inc. and Shaw Communications Inc., were strongly opposed to any kind of mandated pick-and-pay model. Quebecor Media Inc. already offers a pick-and-pay plan in Quebec, which operates under different market dynamics due to its large Francophone population. Rogers Communication Inc. reported on a trial in London, Ont., that offered TV subscribers more control over the channels they pay for, which the company said drew new cable customers and helped to offset losses caused by some channels' lower penetration rates. Cal Millar, president and chief operating officer of independent broadcaster Channel Zero Inc., expressed concerns about declining penetration rates. “The closer you get to the pick-and-pay, the individual, ‘a la carte’ selections, the closer you get to very low penetration of a great many services. And how will this impact specialty services?” Millar said in an interview. “What happens is that you have a massive attrition of channels.” Millar's comment echoed an argument put forward by vertically integrated company BCE, whose Bell Media subsidiary operates 29 specialty services. The company has also reached an agreement to purchase Astral Media Inc. and its 22 specialty channels. “A regulation requiring that all programming services must be made available to consumers on a stand-alone basis would have far-reaching ramifications,” Bell said in its submission to the CRTC this month. “Undoubtedly, a market shake-out, causing many specialty services to exit, would ensue.” In an age of online video, social media and other mass communication platforms, Winseck said, broadcasters can find other ways to appeal to consumers if they cannot “ride on the coattails” of more successful channels. “I’m not sure how strong that argument is anymore,” he said. “It seems to me that there are quite a few ways that one can start to build brand awareness from a low level.” Michael Janigan, executive director of the Public Interest Advocacy Centre (PIAC), said the CRTC should force the industry to offer consumers pick-and-pay or a la carte models, even if it means reduced TV revenues or programming options. “What consumers want, they should be able to get without taking a whole raft of other entertainment choices that have been selected for them for commercial reasons,” Janigan said in an interview. He agreed “there would clearly be winners and losers among the channels” under a pick-and-pay model but said this would not necessarily be a bad thing for consumers. “If that’s what the consumer wants, then that’s what the consumer wants,” he said. Janigan said the practice of forcing consumers to buy large blocks of channels to get a handful they want is “in effect, a form of taxation on television users to ensure that we have high-quality content.” Millar said that, even under a pick-and-pay model, many consumers would not save money because most households would purchase five to 10 channels per person at between $2 and $5 each. In the end, he said, households would end up paying about the same amount on their monthly bills and would no longer receive a majority of the channels they tune into occasionally. “Consumers will always talk about wanting choice, but the vast majority of them, when confronted with the cost, will choose packaging because they will take quantity over individual choice,” he said. “They will take the value proposition of packaging.” Janigan said this argument is counter-intuitive to the objectives of consumer choice. “When you pare down the rhetoric, what it effectively means is that consumers don’t know what’s good for them. We do, and let their options be limited so we can offer high-quality programming,” he said. Even if only a portion of consumers chose to adopt the pick-and-pay model, specialty services would probably see a significant impact on their penetration levels and revenues, Millar said. He said Bell-owned sports channel TSN benefits from “near-ubiquitous” penetration across the country because distributors are required to offer it in high-penetration packages. This allows the channel to reach into approximately eight million homes, he said. Under a pick-and-pay model, he said, high-cost channels like TSN might be lucky to see penetration levels of about 25 per cent because not all households value live sports enough to pay a premium for TSN. “If we were given pure a la carte, I’m not sure TSN would get chosen in our household,” said Millar, who described himself as an occasional sports fan who typically watches more family-friendly programming. With lower penetration levels comes lower advertising revenues, he said, which leads to less funding for programming. The result would be less quality programming and less consumer satisfaction with the channels they pay for, which in turn leads to lower penetration levels, he said. In an emailed statement to The Wire Report Wednesday, Kevin Crull, president of Bell Media, said world-leading penetration levels in Canada suggest the commission’s concern over consumer choice is unwarranted. He said broadcasters need “reasonable and predictable levels of revenues” to support their specialty channels, and that a pick-and-pay model could reduce the quality of programming. ltimately, choice could actually be reduced for consumers,” he said, noting that Canadian consumers now have more than 300 channels to chose from. “Canadians are avid television watchers, with the average household tuning in to approximately 50 different channels every month. With more Canadian households (over 91%) subscribing to a television service provider than anywhere else in the world, and watching 18% more than the average—this number is the highest it has ever been and it continues to grow,” Crull said. He said the U.S. Congress considered an a la carte model in the mid-2000s, but after two years of studying the issue, the Federal Communications Commission, consumer groups, elected officials, and the broadcasting industry “found conclusively that consumers would be harmed by higher prices and would receive far less choice.” Crull said the success of the existing subscription TV model “can be attributed, in large part, to the incredible variety of programming available and the many voices and programs that find their home in Canadian living rooms.” nkyonka@thewirereport.ca

Industry contemplates ‘what if’ move to pick-and-pay TV

Broadcast | April 12, 2012

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