The government’s Speech from the Throne is set for this Wednesday with a “consumer first” agenda reportedly a focal point of the upcoming legislative agenda. Industry Minister James Moore discussed the speech over the weekend, pointing to a range of targets including wireless competition, wireless roaming fees, and the bundling of television channels that forces millions of consumers to purchase channels they do not want. Moore says that the government will require cable and satellite providers to offer a pick-and-pay option to consumers, though it is not clear which legislative tool they will use to do so. I wrote about the forthcoming throne speech last month, pointing to pick-and-pay services as a potential policy reform.
I also wrote about the benefits of a pick-and-pay system last year, arguing that the “broadcast community has long resisted a market-oriented approach that would allow consumers to exercise real choice in their cable and satellite packages, instead demanding a corporate welfare regulatory framework that guarantees big profits and mediocre programming.” This is particularly true of Bell Media, Canada’s largest media company that has been among the most vocal in opposing consumer choice. In a hearing before the CRTC that focused on consumer choice, Bell said that “we are dreadfully fearful of a penetration decline that would wipe out revenues that are necessary to support the obligations of these services.” It reiterated its opposition when asked directly, claiming “there will be a potentially dramatic penetration drop, and hence volume drop and hence revenue drop, as repackaging moves along the continuum to, you know, set packaging all the way to standalone.”
Opponents will warn that a pick-and-pay system could lead to less choice and higher prices for consumers. Their arguments will focus on the loss of “cross-subsidization”. This occurs where consumers may individually only watch a handful of channels, but if each watch different ones, they effectively cross-subsidize their respective interests. Supporters will claim that without bundles, many channels will either disappear (the market being too small to support based solely on consumer choice) or be forced to raise prices in order to replace lost bundle revenue.
While it is true that the loss of cross-subsidization may hurt some niche channels, the more competitive broadcast environment will still leave consumers coming out ahead. First, pick-and-pay will only be one option since bundles will continue to exist. In fact, as broadcasters and broadcast distributors to compete for consumers who now have a pick-and-pay option, they are likely to respond by offering more attractive bundles to keep consumers paying for that format.
Second, as more consumers consider dropping cable or satellite for online services (such as Netflix or other streaming services), the pick-and-pay model will provide welcome relief, as they can create a customized model consisting of a mix of Internet-based services alongside the odd broadcast channel (ie. sports programming) as needed. Since broadcast distributors also offer Internet services, consumers will continue to pay either way.
Third, the arrival of pick-and-pay will inject much-needed competition into the broadcast environment. Niche broadcasters with small audiences will be forced to adapt by considering alternative distribution models, new sources of revenue, and other changes in order to survive in a marketplace where success requires more than just inclusion in a lucrative bundled package.
The real danger in the months ahead is not less choice (consumers now have virtually unlimited choice given Internet-based alternatives) or higher bills (consumers will have the option of paying more or less but the choice will finally be theirs to make), but rather the potential for the vertically integrated giants to use their broadcast distribution power to grant preferential treatment to their own broadcast properties. Cable and satellite companies should theoretically welcome the chance to offer more options to subscribers – including pick-and-pay – but the vertical integration between broadcasters and broadcast distributors may create anti-competitive incentives. With Bell, Rogers, Shaw, and Videotron each controlling a major broadcaster, it may make economic sense for those distributors to prioritize their own channels within bundles while offering their customers less choice. The government and the CRTC must safeguard against such activities as they focus on a transition that places consumers first within the broadcast distribution system.
This summer, I wrote about the prospect of a broadcast overhaul that could take a decade to play itself out. As the first of four major changes, I argued:
there will be growing pressure to eliminate all must-carry rules, instead adopting a must-offer system in which cable and satellite companies will be required to offer channels to their end users on a pick-and-pay basis. Those channels may prove costly, but the purchasing decisions will lie in the hands of consumers, not regulators or vertically integrated cable and satellite providers.
Even with pick-and-pay, there will be still be other policy reforms needed, including the removal of foreign ownership restrictions on broadcast distributors and a re-examination of the current mandatory contribution requirement system and simultaneous substitution policies.