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Government to Mandate "Pick-and-Pay" Pricing Option for Television Services

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Tuesday October 15, 2013
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.
Comments (14)add comment

Crockett said:

...
Much like the music and movie industries moving too slow to adapt to emerging technologies and customer expectations ... I wonder if the forced move to *finally* open up channel bundles is too little/late.

On another note, the conservative government's sudden conversion from pro-business to pro-consumer so close to an election year (and inconvenient scandals) rings a little hollow to me. If it is suddenly a such good idea now, why not when they came into power? Never mind, I already know the answer to that one :/
October 15, 2013

Devil's Advocate said:

Expect the usual FUD
Presenting Bell, Rogers, et al with the prospect of having to unbundle the stations will certainly unleash another round of propaganda ads, seemingly designed to insult everyone's intelligence (which they'll want us to think of as "public interest announcements"). The utter bullshit they always come up with (particularly from Bell) never fails to set new records of absurdity, as they scramble to defend their gravy train business model.
October 15, 2013

Jason said:

Sorry Mike, you are way off on this I think.
This will do nothing for TV price. Example: hypothetical current bill is $75/month and get 200+ channels (20 of which you only watch and no TMN/HBO stuff). Now with cost per channel price - $2 for network, $5 for specialty (comedy, teletoon, etc) and $8-10 for sports. 4 American networks and 3 Canadian ones is $14. 5 specialty channels is $25. and the 8 sports (6 SportsNet and 2 TSN) channels left over are $80. In total we now have $119 for less TV. Man we get screwed on everything up here. Bundling will still make sense unless the Gov puts a cap on price per channel.
October 15, 2013

schultzter said:

Unbundle everything
The reason I still risk my life climbing on to the roof to setup an antenna is because we watch three or four channels on a regular basis. Less during the summer months. If I could pay $10 a month to get my four channels I'd be happy.

Also, I wish the CRTC would force the carriers to stop putting their horrible software on my smartphone; and allow the manufacturers to send through updates faster. No there's something the CRTC should really work on!
October 15, 2013

JoeB said:

Wholeheartedly agree with Jason..
Just like the recent cell phone 2 year max plan decisions, the providers will simply use any such legislation as an excuse (and perhaps to simply thumb their noses at the government) to raise prices on already existing services/bundles and set unreasonable costs for "new" pick-n-pay options - expect further cap decreases and price increases on the internet side too, they aren't going to want to put themselves out of busin...erm, yeah right... more profits by giving incentive to cut the cable for all-you-can-eat services like netflix.
October 15, 2013

pc said:

Jason is correct
If all channels go to iptv then a cap on local, national, american, global channel cost is to be considered. The old system used a resistance filtering scheme, iptv changes the game.
October 15, 2013

maebnoom said:

Finally!
I can't wait for this to happen. And bundling doesn't have to disappear - we will simply have more choice. (purchase Bundles A & B plus Channels 1, 3, & 8) It's not an either/or proposition. (Even if it was, I'd still take choice over savings.)
October 15, 2013

Napalm said:

2 distinct issues
Guess there are 2 distinct issues here:

A. How much one would have to pay monthly in a bundle vs. a la carte system
B. Where is the money going in a bundle vs. a la carte systems

(A) has been debated to death and I won't comment any further.

My real issue is with (B). I am totally against subventioning channels/shows/artists that I profoundly dislike. Is it possible that we find a system where your money goes strictly to the channel/show/artist that you actually watch and enjoy?
October 15, 2013

Ramblin' Rose said:

If a Basic package with 20 channels costs 40 dollars...
If a Basic package with 20 channels costs 40 dollars, they will probably price individual channels at $3 and then when you get to 14 you say wtf and buy the bundle, which probably before the legislation cost $35!
October 15, 2013

Napalm said:

"Niche broadcasters with small audiences will be forced to adapt "
Actually not. In the current model they tend to be pushed out of the basic bundles because they don't appeal to the masses. And thus they are pressured to include some "wider audience" programs too as to give them some critical mass that would allow them to stay in the basic bundle. Which in turn annoys their core audience. So they're walking on thin ice there. In a pick-and-pay model they can concentrate on their core audience only, as there's no more pressure to include "Babe Watch" type of programming.

In a pick-and-pay model, would you rather run something like an unique "science channel" with a stable 1% audience, or would you go compete with other 200 "reality-show" channels in order to get to the 99%? Beware that 99/200 is less than 1%....
October 15, 2013

Ray said:

...
A throne speech can be nothing more than a teaser of goodies. Expect the Cons to milk it as much as they can for political support. The bill can include poison pills that the opposition can't possibly support; that will give them the excuse for claiming that it's the opposition that's blocking the bill.
October 16, 2013

Devil's Advocate said:

99/200 - Not to nitpick...
Methinks 99/200 would be just below 50%.
October 16, 2013

Napalm said:

lol
ok that should have read 99% / 200. Which is about 0.495% lol.
October 16, 2013

ahoy said:

Freedom of Choice
It is enough to pay $9 dollars a month for a cloud service and you have any TV show at your disposal (plenty of link aggregators out there). If the mountain won't come to Muhammad...
October 17, 2013

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