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Unbundling the Great White North

Natalie Klym

January 8th, 2016

It’s been called “the great Canadian unbundling,” and it officially begins this March. According to the trials for a la carte pay TV, Canadian customers loved the “pick and pay” option, while the networks hated it.[1] What the trials didn’t reveal, however, is that a growing number of customers couldn’t care less because they don’t even know what a TV channel is, or a TV show for that matter.

 As in most countries with multichannel pay TV services, consumers in Canada have been fighting rising bills and the forced inclusion of unwanted channels in their packages for years. With the emergence of online video distribution alternatives, a la carte and/or skinny bundles are now one of several tactics designed to keep would be cord-cutters from defecting to online-only options in search of lower prices and greater control (and a better user interface!). Granted, the online video market in Canada pales in comparison to the U.S., but services are appearing, including Shomi and CraveTV (both offered by Canadian MVPDs), and Netflix has been available in Canada since 2010 (albeit with a catalog that is still only half the size of the U.S. catalog – but hey, Canada is the only country in the world that will have the latest Star Wars on Netflix). And of course, many Canadians have been using virtual private networks to access the American Netflix catalog as well as other services like Amazon, Hulu, etc.

As a decidedly pro-consumer move, the Canadian Radio-television and Telecommunications Commission (CRTC) thus ruled last spring that the multichannel providers must offer a “skinny” basic TV package for no more than $25 per month (Canadians currently pay on average around $50 a month for basic cable that includes an average of 50 channels[2]) with the option to add further channels a la carte, or in smaller “skinny” bundles. Typical back-of-the-envelop calculations estimate channels will cost between $5-$15 each. The new basic package will include a total of roughly 20 local stations and mandatory channels, including public interest, educational, and provincial legislature channels (the “vegetables” of television). Subscribers will also have the option to include up to four American networks (NBC, ABC, CBS and Fox), plus PBS.[3]

Despite the expectation of lowered cable TV bills, analysts have shown that a la carte TV will not necessarily result in consumer savings due to the economics of bundling—of individual shows into channels, of channels into tiers, and of video and other communication services with broadband—especially now that most consumers complement their pay TV subscriptions with at least one online offering delivered over a tiered Internet. Simply put, without cross subsidization, many channels will be more expensive on a per unit basis, and so will other communication services as ISPs juggle things around to make up for any TV revenue losses with additional broadband charges. (Not to mention the confusion and switching costs that are sure to ensue. One study has shown that consumers are often driven toward picking and paying for one larger package out of sheer choice fatigue.[4])

The main beneficiaries—should they bother to sort it out—will therefore be those who don’t watch the expensive channels or the price-sensitive, low-value customers who choose to sacrifice scripted TV series in the interest of saving money. And those who really value sports or other premium content will presumably be willing to pay more for those channels.

But regardless of cost, the real issue for many consumers is control. They don’t want to pay for what they don’t consume, whether its high-quality programming or the government-mandated channels that are supposed to be good for the cultural and sociopolitical health of the nation. Canada in particular has several decades worth of domestic content regulations intended to protect its cultural industries and identities at both an intranational (French vs English for example) and international level (primarily Canada vs U.S.). Interestingly, part of Canada’s “future of TV” discussions included a reduction in Canadian content quotas and other protectionist policies in recognition of an increasingly global marketplace.

As far as the networks are concerned, much of their business relies on the “forced private subsidization” of their content by consumers, so naturally, they are not happy to see its demise. Consumer resistance to advertising only exacerbates the revenue problem. Some U.S. media executives reportedly threatened to boycott the Canadian market during last year’s CRTC talks, fearing that a la carte would spread south, like a virus, or communism…[5]

But some media executives are looking beyond the simple shutting down of certain networks. For example, some have suggested that we may see a sort of unbundling at the show level, e.g., a network may fold, but one or more of its more successful shows could move to another channel or get picked up by one of the online services like Netflix or Amazon. (We hear people say more and more often that they watch shows not channels, and yet the regulatory focus has been on the unbundling of channels—but that’s another blog.)

Others, like Blue Ant Media in Canada see unbundling as a logical and necessary step towards an inevitable future dominated by both digital and global distribution.[6] The combination of digital technologies for creation and distribution—including translation—means more people now have the ability to create media, and to distribute it around the world. As the New York Times reported in 2013, “the United States and Europe will feel new competition from faster-growing regions: Asia, of course, but also Latin America, Africa and others.”[7]

A lot of inefficiencies will surely be wrung out of the Canadian system over the next few years. As noted in the recent CFP paper, The Ambiguity of Disruption, we expect a content shakeout involving a consolidation and reaggregation of traditional content at various levels. In that sense, the a la carte/skinny bundle story is very much about this particular disruption trajectory.

However, despite the fact that Canada has been revered for having courageously delved into the difficult conversation about the future of television distribution, the more interesting issue for me still concerns the second, deeper disruption trajectory: The very form and definition of visual media content is shifting, along with the cost structures and business models of its production and distribution—issues that remain obscured by incumbent concerns like a la carte and skinny bundles that do not directly pertain to online—and global—distribution platforms like YouTube, Facebook, and Snapchat, which deliver entirely new experiences that bear little resemblance to traditional television.








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