Reflections on conversations with Canadians on the future of broadcasting #1

Later this year the CRTC will begin its conversation with Canadians on the future of broadcasting. I suspect that the starting point from the consumer perspective is fairly easy to predict. Consumers generally want more choice in terms of channels and shows and at lower prices. In the case of satellite and cable packages this tends to mean more control over their choice of channels in packages as opposed all a la carte or paying for big bundles. That is the same debate that’s occurring in the U.S. right now.

That raises the issue of a la carte or more pick and pay bundles. And this is where the debate gets complicated. Because too much choice can reduce the amount of high quality content being produced overall.

There was a good article from the investor newsletter the Motley Fool last week entitled You’re Stuck With the Cable Bundle, and That’s Not so Bad. The article highlights a core problem with a la carte, which is if everyone got to choose only the channels they want then all channels would have much lower levels of subscriber penetration and therefore much less subscriber revenue unless the price per channel increased dramatically. Even if the price was able to increase dramatically, without further reducing the number of subscribers, advertising revenues would plummet because of materially lower subscriber numbers per channel.

Less subscription dollars and less advertising means less spending on original content and more repeats and filler to complete the schedule. That sucks and is often the reason people don’t want certain channels in the first place.

The scary thing, I suspect, is that most consumers don’t really want that outcome if it means a loss of original or quality content on their favorite channels or big increases in what they pay per channel. But under a full a la carte model everyone’s channel is worse off. Arguably  a la carte is just a simplistic way of expressing frustration with big bundles. Consumers do want to pay less and not feel they are forced to buy channels that seem to have no value at all. But it may be, subject to research, that many consumers are quite happy with packages if they seem priced fairly.

In our view, at CMPA as an Association representing producers of original content, the debate on a la carte has to be more nuanced than it sometimes is. If the endgame is to deliver the level and quality of original content we see today; House of Cards notwithstanding. Arguably the content produced for TV today has never been better, whether it’s a Canadian show like Orphan Black or Breaking Bad and Downton Abbey from the U.S. and U.K. respectively. But to produce these shows in large number depends primarily on channel bundling and the subscription and advertising revenues that flow from that.

In many respects a la carte and/or choice at lower cost is already an incremental option today but these options are not sufficient for most as a viable substitutes for cable and satellite, at least yet. Netflix gives you lots of movies for a flat rate but, not the most current. In larger centers you can get conventional TV in digital without any cable subscription. But you may not get everything you want if you like edgy cable and specialty dramas. That is why viewing on traditional TV services has not declined overall even as viewing to more on-demand alternatives has clearly risen.

Apple TV allows you to watch a ton of current TV shows and pay per show or movie only when you watch. That can be a good option for some, as long as you are not worried about the meter running. If you wanted to still watch the 27 hours of TV a week Canadians average, you won’t want to pay $3 or $4 an hour to watch everything. It has to be a mix.

If you don’t like the meter running on your TV all the time but want additional TV fare then you have to look at other alternatives like flat rate broadband services like Netflix to supplement VOD, assuming  you don’t want cable to fill the gap. But you can pay for a lot on VOD plus different bundles on broadband without running up the bill again. That combination may still, or may not, save you money, but you might not get all the HBO shows like Game of Thrones or the CFL and NFL or the hockey and golf you like.

Ubiquity in terms of content, is where cable still has the edge, even if many people think the price is too high. But TV is increasingly price elastic, and there is cord cutting/shaving due to broadband alternatives.

Retention of subscribers from cord-cutting/shaving is why cable/satellite and other broadcast distributors experimenting with smaller packages and TV Everywhere.  But will that be enough? That depends on the consumer because even if distributors have a more detailed understanding of what consumers want through their own market research, the need to make trade-offs in terms of how to time or phase in new options without cannibalizing their current revenues limits their options.

At the end of the day the CRTC has to find a policy balance around its pillars of consumers, citizens and creators but it does not fully control the outcomes anymore. Technology allows consumers to bypass alternatives they don’t like. So one of the really important things to begin “the conversation” is a better detailed and empirical understanding of what consumers really want, when they say more ability to choose what they want on the platform they want at a price point they like. This is not an issue unique to Canada. The U.S., as the article above demonstrates, is addressing the same questions. But objective market research will be critical for the CRTC to have if it is to better understand the tradeoffs consumers are willing to support in terms of price, value and control.



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