Changes ahead for TV sector in 2016

If industry and regulators spent much of 2014 talking about the future of TV in Canada, 2016 will provide the first glimpse of what that future might look like. “If 2015 was the year for announcing changes, I guess 2016 will be the year for actually making the changes and implementing them, because there are a lot of things that the CRTC had put out last year and a lot of them come into effect this year,” 3Macs analyst Troy Crandall said in a phone interview. The biggest of those will be the CRTC’s implementation of the new skinny basic and pick-and-pay rules, which came out of its Let’s Talk TV proceeding on the future of television. By March, TV providers will be required to offer a skinny basic TV package, priced at no more than $25 a month, and either pick-and-pay or a choice of either self-built packages or small pre-assembled packages for channels outside of the entry-level basic. By December, TV providers will have to offer customers both options. Crandall noted that the financial impact of the changes to come in March probably won’t become visible until mid-2016 or later. He said that, if companies “play their cards right,” the new rules for TV packages could also present an opportunity. “If they can create a re-priced television package … you could get finally some of those … young people that have never had a cable subscription before. You might actually get them on board and have them paying. So it is possible,” Crandall said. The same might go for lower-income families who couldn’t previously afford TV service, but may be able to afford $25 a month, he added. Gord Hendren, president of Charlton Strategic Research Inc., said in a phone interview that the implementation of pick-and-pay will be “without question, the biggest event of the coming year from the television point of view and cable point of view and content point of view.” Given that the full options won’t be implemented until December, it’s unclear how much of the impact of pick-and-pay will be visible in 2016, though Hendren said a lot of companies are trying to get ahead of the requirements and we might see changes sooner than the CRTC requires. “It’s sort of happening as we speak. And those bundles are getting sort of re-thought and re-packaged. So I expect that it’s going to be rolling out a little sooner than those hard dates.” Before that happens, the wholesale code, which governs the business relationships between TV-service providers and channel operators, is set to take effect on January 22, though whether it stays in effect depends on the success BCE Inc. has with its court appeal of the code, which was given the O.K. to proceed on December 22. A few days later on January 25, the CRTC will kick off its proceeding on the fate of local and community TV. Consultant Peter Miller said that hearing could be a sleeper issue this year, though he noted he was speaking “with some bias,” since he represents small market independent stations and worked with Channel Zero Inc.’s CHCH on its recent restructuring efforts. He said the hearing could become political. “My own personal view is that the CRTC has completely underestimated the significance of that issue and how local broadcasting is both massively at risk and still hugely appreciated by Canadians,” he said. “There’s an expression… all politics is local. This is going to be a very political issue if the CRTC doesn’t step up and really … because people and MPs and MPPs don’t want to see local TV stations die.” Miller said another possibility is pushback by both the industry and government towards some of the Let’s Talk TV decisions. “I can also say that I’m probably going to be an architect of some of that pushback. I think the commission has got a lot of those decisions wrong, and under this government there’s going to be a willingness to shift the balance,” he said, noting that the Talk TV proceeding arose out of a direction given by the previous Conservative government. The new Liberal government’s options include appointing “more bodies … that can represent their views” to the CRTC by filling vacancies among commissioners, issuing a direction or even replacing the current chairman. He noted that companies, particularly Bell, are already challenging some of the decisions through the courts. In addition to the wholesale code case, Bell is also challenging the CRTC’s mobile-TV ruling and the CRTC’s decision to eliminate simultaneous substitution for the Super Bowl. One target could be unbundling, Miller said. “Not to say there won’t be unbundling. I think, quite frankly, it would be very difficult for the CRTC or the new government to say ‘no, we’re not going to allow this, but I think it could be allowed in such a way as would reduce a lot of the damage that would otherwise take effect.” Another potential target is the preponderance rule, which used to state subscribers must "receive" a preponderance of Canadian services, but now only requires TV providers to "offer" a preponderance of Canadian channels to their customers. “That’s a huge change when you think about it. Under the old rule, BDUs couldn’t offer all-American packages, they couldn’t have more American services than a package of Canadian services. Now they’re going to do that,” he said. Another potential issue, he said, is the current regime for over-the-top (OTT) services, including the hybrid exemption order that the CRTC introduced last year, which provides incentives for TV providers to offer their OTT services to all Canadians instead of only to their own customer base. Miller said such policies contributed to changing “the whole focus of Canadian OTT,” because services like CraveTV and Shomi were initially conceived as complimentary to the companies’ TV service offerings. “Now those offerings are going to be competitive. So you have way more cord-cutting and cord-shaving, way more people taking those services and abandoning BDU services, and given that none of those OTT services, Canadian or foreign, have to make any contributions to Canadian broadcasting, you have a recipe for another major hit in terms of support for the system,” Miller said. He added that the cord-cutting trend is continuing, and its existence has been accepted by industry. “For a while, people were kind of in denial,” Miller added. The ongoing move towards more TV streaming is also set to continue in 2016. Sometime this month, Bell will make its Crave TV available to all Canadians, following a similar move by Rogers Communications Inc. and Shaw Communications Inc.’s Shomi last year. Crandall said he’s watching to see what price Bell settles on, something the company is currently staying mum on, as well as whether the company keeps Crave in its current form, or makes changes like splitting the service into basic and premium formats. Hendren said he sees no reason for the streaming trend to stop, and while he expects cord-cutting to continue, he predicted there is also potential for people to come back into the TV system. “I see that, certainly from the research we saw, there was an opportunity to repatriate people who have cut the cord, because if they saw a more flexible, more reasonably-priced package, they were interested,” he said. “So I can see cord-cutting sort of evolving to churning, meaning that people had churned out but they might be coming back.” Macquarie Capital Markets analyst Greg MacDonald also said in a research note this week that cord-cutting could continue to be a trend in 2016. “Canada is not immune to the risk of cord-cutting due to its high relative OTT penetration and we think that the upcoming CRTC skinny basic mandate in March and pick-and-pay in December could further weigh on TV subs and media estimates,” he wrote. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Shruti Shekar at sshekar@thewirereport.ca

Changes ahead for TV sector in 2016

Broadcast | January 8, 2016

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