Cable subscriber fees try to balance viewer wants and broadcaster needs

With great programming and increased channels comes even greater subscription fees, or so it might seem to the average Canadian consumer. Digital cable, DTH, video-on-demand, pay channels, and pay-per-view are only a handful of choices now available to viewers, but there is an ever-growing number of unregulated options to lure Canadians away from licensed BDUs. At the Canadian Satellite Users Association’s Canadian Digital Broadcasting Summit held in Toronto January 29 and 30, executives from the worlds of production, broadcasting and distribution debated whether the current subscription fee structure can support local industry while simultaneously promoting the need to address increased consumer choice.While ExpressVu VP of programming and PPV Chris Frank said pricing schemes should encourage access to relevant programming and increased options for viewers, S-Vox president and CEO Bill Roberts and Martha Fusca, president and CEO of Stornoway Communications LP – which develops specialty diginets such as The Pet Network and bpm:tv – argued subscriber fees should support non-mass appeal services to maintain Canadian identity. The panel was in agreement on one point, however: a course of action needs to be decided upon soon, as the threat of unregulated devices increasingly looms ever-larger over the cable and satellite industry in Canada."If we think the grey market is less a threat now than three or eight years ago, bear in mind these folks have access to a bigger market, better finance, better locations and they will buy and provide more signals and opportunities than our domestic industry," Frank warned the delegates. As these services grow, customers who value choice could migrate to new systems not covered under the CRTC’s purview for easy access and cheaper services, which could potentially kill the Canadian marketplace. His answer: loosen regulations on Canadian BDUs so the industry has as much flexibility as its unregulated competition.Frank argued the industry must cater to customer demand and not to old business rules. With the threat of "over-the-top" broadband video (using cable broadband to get TV channels directly from cable owners) and location-free devices (which allows viewers to view content on more than just a TV screen), he said it’s time to think beyond guaranteed-revenue requirements and rigid packaging. "Rates for customers need to be value-driven, not prescribed by artificial business cases," he said, adding the industry should follow the business model adopted by other commercial enterprises by basing pricing standards on volume, not penetration.For example, Bell ExpressVu wants to provide each customer with as many services as they can afford and would like to have, and that’s offered through marketing bundles. And while the BDU isn’t a huge proponent of à la carte programming, creating options for its consumers so they can supplement a broadcasting bundle with one or two channels outside of the package helps break through traditional business models and encourage broadcasters to compete with each other to offer the most relevant programming.Frank said competition can also come from dismantling distribution linkage rules, whereby the cable operator could pick up a US station as long as one or more Canadian services were added. He also wants the commission to throw out genre protection, saying the rules are archaic business models that restrict Canada from stepping outside of its comfort zone. He believes allowing more channels and options will keep the industry flexible enough to keep consumers from straying to the grey market and instead remain subscribed to cable and satellite.It’s this threat of higher volumes of foreign programming that has Stornoway Communication’s Fusca concerned about US dominance over the Canadian cable and satellite system. She said American producers and networks have the infrastructure to produce both volume and quality, and Canada will lose if subscriber fees cannot support the burgeoning number of national diginets relying on original productions to compete. "There’s increasing pressure from the BDUs to bring the rates down, but you can’t deliver a popular channel without making a serious investment in content," she said, adding that the interests of broadcasters and BDUs are so far apart that the commission needs to set subscriber fees.Frank, however, believes the public can guard its own good when it comes to paying subscriber fees. He relates it to supply and demand, and services that are more popular will earn more money via rates. "What about other ways of doing business such as commercials, advertising – there’s other sources of revenue without jeopardizing value to the customer," he said. "Every additional source of revenue will help...and specialty services should rely more on commercial and less on consumer revenue."The amount a subscriber currently pays for a channel such as Vision TV doesn’t add up to much. As part of the basic cable service on most cable systems, each subscriber pays 12 cents a month to access the channel. At about $1.50 a year per subscriber, it’s less than a cup of coffee but Roberts said the accumulated fees are necessary to keep the channel alive. The funds also pad the budgets of Vision’s original programming, which competes nationally and abroad.The concept of a completely à la carte menu wasn’t offered by any of the panelists as a solution to keep subscribers with regulated services, which was a relief to S-Vox’s Roberts, who said switching to this pricing method would bury many independent Canadian cablenets and diginets. S-Vox is the parent company behind basic cablenet Vision TV, as well as diginets The One and Two.He said some independent Canadian networks not owned by larger companies, such as APTN and Vision TV, are a necessity in the national marketplace because they cater to audiences underserved by the mainstream and create diversity to reflect the Canadian landscape. These channels, however, retain relatively low ratings and underwhelming ad revenues when compared to the other networks owned by conglomerates. In an à la carte world, he argues consumers would be more drawn to the larger channels, forcing fees to go up on the indie networks or the services to disappear altogether.A proposal Roberts has been touting for a number of years is a regulated option he calls the "Green Space," which would offer a safe space on a basic tier for these independent channels that offer Canadian content and are defined as addressing the public interest. "Not everyone in this room will use a public library, but we’re thankful to have them," he said. The foundation tier would be a must-buy, and replace the basic tiers now offered on cable and satellite.But unless it’s a moderately priced essential or basic service, Bell ExpressVu’s Frank isn’t certain this proposed life preserver for indie channels is in the best interest of consumers and the growth of the industry. Although Canadian services are an important point of differentiation for the operator, he said must-carry services should be restricted to high-standard, priority services. "If our service…is required to carry a relatively expensive basic, it cuts down on a customer’s ability to buy the new HD services that will drive the future," he said, adding recent research conducted by the BDU shows 20% of its subscribers want better picture quality, 19% want more channels, and 15% would like to see more movies added to the line-up. While Fusca and Roberts look to the nation’s regulators to help lead the way with subscriber fee direction, Frank said the success of Canada’s cable services is based on how smartly business is conducted. "This will be forged through commercial deal making, not public policy," he said. It’s clear the debate is not over, but consumers will demonstrate what works, and what doesn’t, through their own spending habits in the coming months.

Cable subscriber fees try to balance viewer wants and broadcaster needs

Broadcast | March 1, 2007

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