Broadcasters advised to ‘pick their winners’ as pick-and-pay approaches

As the Canadian TV industry approaches an era where customers have more choice over the channels they subscribe to, large broadcasters should “pick their winners” and consolidate into a smaller number of channels, a new report from RBC Capital Markets says. “Today, many if not most specialty channels benefit from being included in large BDU packages — particularly outside of Quebec," the report released Thursday said. "For years, BDUs have been delivering ‘more-for-more’ to consumers: increasing price alongside an increase in the number of channels. While big bundles have supported a large number of specialized/niche services, we believe existing channel penetration likely exceeds real demand for individual services, even the most popular ones.” The report said: "We believe it makes sense for larger broadcast groups to 'pick their winners' and consolidate their best content onto fewer services." The CRTC has mandated that by March 2015, TV providers must offer a skinny-basic TV package for no more than $25 a month, and either pick-and-pay or a choice of self-built packages or small pre-assembled packages. By December 2016, they must offer customers all those options. The report included results from an online survey of 542 Canadians, conducted in early November. It has a margin of error of five per cent for questions where the subset of respondents was 400 or higher, RBC analyst Haran Posner said in an email. The survey asked the 405 respondents who subscribe to TV service what Canadian channels they would include in a package they could build themselves. Respondents chose an average of 15 different channels. The most-selected 10 channels were: Shaw Communications Inc.’s over-the-air Global network, and its History and Showcase specialty channels; BCE Inc.’s CTV network along with its Discovery specialty channel, its premium channel The Movie Network (TMN) and its sports channel TSN; Rogers Communications Inc.’s City network and Sportsnet; and Corus Entertainment Inc.’s Movie Central, which is being phased out as part an agreement with Bell so it can expand TMN in the West. The channels most at risk, RBC said, are those with penetration levels that are much higher than demand. Examples include CBC/Radio-Canada’s CBC News Network, PelmorexMedia Inc.’s the Weather Network, Corus’ YTV and CMT, and ZoomerMedia Ltd.’s Vision TV. The report also compiled its own information with data from the CRTC to analyze the effect of cord-cutting and cord-shaving at the individual channel level between 2010 and 2014. During that time, Historia was among with channels with biggest proportional loss of subscribers with a decline of 7.8 per cent, while Séries+ fell 7.9 per cent and Shaw’s Slice dropped 5.8 per cent. Channels that saw the biggest increases during that timeframe included Shaw’s Action, which grew 10.9 per cent, while Allarco Entertainment Inc.’s Super Channel at 6.5 per cent and Shaw’s Lifetime at 8.8 per cent. Overall, the top 50 channels over that time was saw a decline in subscribers of 0.6 per cent. The report echoed previous conclusions by some experts that pick-and-pay could reduce cord-cutting, stating that while the new rules could accelerate the numbers of people who subscribe to fewer channels, they could also incite people to stick with or sign up for traditional TV service. Reponses to RBC’s online survey showed while pick-and-pay will likely lead to cord-shaving by customers who want smaller packages, “frustration with large TV packages among non-subscribers (and their potential interest in pick-and-pay) supports our view that offering smaller/cheaper TV packages could slow the pace of industry cord cutting (cancelling subscriptions altogether) and potentially attract new subscribers to the ecosystem (including 'cord nevers' who have yet to subscribe).” The report noted that while the full impact of the CRTC’s new framework for TV won’t become clear until a year or two after it is implemented, the authors “fail to see how the net impact of these regulatory changes can be positive for the industry.” Just more than half of respondents, or 52 per cent, said they were either unlikely or very unlikely to get rid of their TV subscription in the next year, while 29 per cent said they were uncertain and 19 per cent said they were either likely or very likely to do so. “It is difficult to assess these figures without a baseline of historical data, but 19% is not insignificant,” the report said. Earlier this month, a separate survey found most TV subscribers will not scale back their service as a result of the new options. The report said the most popular reason for potentially cutting the cord, cited by 65 per cent of respondents, is the high cost of TV, followed by “the frustration of paying for unwanted channels,” identified by 52 per cent, followed by the availability of content online, which was picked by 31 per cent. Two-thirds of respondents said they were either likely or very likely to switch to a smaller package, with 75 per cent saying they would do so to save money and 64 per cent stating they would do so in order to only pay for the packages they watch. The report also found that “cost savings of up to 15% would potentially entice 18% of respondents to switch to a smaller package, and for cost savings up to 20% the proportion of potential cord-shavers increases to 31%.” It added: “It is difficult to estimate the potential cost impact for an average cord-shaver in a pick-and-pay environment given that channel preference is an individual choice and the price per-channel will surely increase in smaller packages.” Saving between 15 to 20 per cent on bills is possible for those households who aren’t interested in a lot of channels. Cord-shaving by a resulting 20 to 30 per cent of households could be disruptive to the industry, the report said. Of the 137 respondents with no TV service, 61 per cent cited cost as a reason for not subscribing, while 53 per cent said they didn’t want to have to subscribe to unwanted channels. RBC also asked about over-the-top (OTT) alternatives. It found that 57 per cent of those surveyed said they watch Netflix Inc.’s OTT service. It added that Rogers and Shaw’s Shomi and Bell’s CraveTV are “gaining traction," with 13 per cent saying they watch Shomi and eight per cent saying they watch CraveTV. The report noted that both Shomi and CraveTV are “likely to add subscribers as content offerings improve” and as they become available on a stand-alone basis. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Broadcasters advised to ‘pick their winners’ as pick-and-pay approaches

Broadcast | November 27, 2015

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Broadcasters advised to ‘pick their winners’ as pick-and-pay approaches

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