Unbundling to overhaul broadcast distribution system, insiders say

The Conservative government’s promise to “unbundle” television channels and move toward a pick-and-pay model will involve a complex series of changes to the broadcasting system, affecting everything from regulations to the carriage agreements between broadcasters and TV providers, broadcast executives said. Company officials are already parsing the language used in Wednesday’s throne speech, in which the Tory government said it “believes Canadian families should be able to choose the combination of television channels they want. It will require channels to be unbundled, while protecting Canadian jobs.” It’s unclear whether the government is pledging to implement a move to an a la carte system, where all channels are available individually, or to a looser pick-and-pay, or “pick-a-pack” system, where customers can create their own packages of favourite channels. “I’d be careful about using the term pick-and-pay,” Chris Edwards, vice-president of corporate and regulatory at the Canadian Cable Systems Alliance, an association of small TV providers, said in a phone interview. “I noticed the throne speech referred to the term unbundling. Pick-and-pay is a tricky term. It has a certain meaning within the industry and probably means different things to government and consumers,” he said. Edwards said the CCSA supports the throne speech and more affordable choice for consumers, adding that the unbundling policy will now become an important piece of the CRTC’s upcoming consultation with the public about television services, which starts next week on Oct. 24. Companies will be looking at how unbundling could work with carriage and linkage rules that can dictate how TV providers offer specialty channels. Some affiliation agreements, particularly with U.S. channels, can also stipulate that channels be offered in high-penetration packages. “It’s going to be complex. The devil’s in the details. There are contracts out there. There is basic service that everybody has to provide. There are mandatory carriage channels,” Edwards said. “This is something that the CRTC is going to have to work out through that proceeding. What does this mean and what are the mechanics of it?” Edwards said further deregulation would be in line with the approach the CRTC has taken in recent years, having loosened some of the regulatory requirements for broadcast distributors. Cannacord Genuity analyst Dvai Ghose similarly said in a note to clients Wednesday that the government’s reference to protecting Canadian jobs suggests that Canadian content and channel carriage rules may not be relaxed as part of unbundling, “making the implementation of a la carte even more complicated.” Unbundling could involve a mandated “skinny basic” package—a smaller, cheaper package than existing basic plans—offering mostly local TV channels and limited other programming. Former CRTC chairman Konrad von Finckenstein said in 2011 that broadcast distributors could be required to offer a skinny basic option as TV viewers consume more online content and cord cutting gains momentum. Independent TV channels and broadcast companies are concerned that, under a pick-and-pay model, consumers may not subscribe to less popular channels or Canadian channels, causing revenues to drop. Actors’ union ACTRA said Tuesday that it was pleased to see the government’s promise to protect Canadian jobs as it implements TV unbundling. “The CRTC has approved so many specialty channels over the years that it is difficult to imagine how they could all survive in an environment where consumers need to choose and pay for them specifically,” Johanne Lemay, a consultant with Lemay-Yates Associates, said in a research note Thursday. “Content producers and owners should be on notice that the framework in which they operate will be subjected to major turbulence over the short to medium term,” she said. Michael Hennessy, head of the Canadian Media Production Association, wrote in a blog posting Thursday that Heritage Minister Shelly Glover is expected to “task the CRTC to look into the mechanics and implications of this and report back so the government can ensure that will be implemented on a mandatory basis.” He said pick-and-pay is inevitable as on-demand options continue to rise. “And as producers, creators, cablecos or broadcasters you need to be where consumers or your audience are if you want to be successful. Pick and pay may be one way to reduce cord cutting,” he said. Hennessy said unbundling and lower revenues will somewhat reduce broadcasters’ ability to invest in original content, adding that “it’s impossible to argue that channels that have no ratings and produce no original content should be forced on consumers.” With unbundling, getting on basic cable will become more important and “a big regulatory issue.” He said to “assume either a big process on basic or a lot of undue preference filings.” Hennessy added: “Some channels that have no audience will go dark for sure. There are channels today that only exist today because they are in bundles." RBC Capital Markets analyst Drew McReynolds said in a research note Thursday that a la carte represents a threat to less popular specialty channels, though the firm expects the CRTC "to strike some form of balance between providing increased consumer choice through a la carte and protecting levels of Canadian content spend and programming diversity." RBC said "a penetration-based wholesale rate regime for broadcasters could become standard practice." Moses Znaimer, founder and chief executive of independent broadcaster ZoomerMedia Ltd., which owns specialty channels VisionTV and One, said unbundling will cause individual channel prices to rise. "The government may be well-meaning, but they are badly misinformed about how things work in television. If packaging is disallowed or handled insensitively, I'm afraid the Canadian public will wake up to find they are paying a whole lot more for a whole lot less," Znaimer said in an emailed statement reported Thursday by The Lobby Monitor. Ian Morrison, spokesman for watchdog group the Friends of Canadian Broadcasting, said in an interview that the government or the CRTC must regulate individual channel pricing to ensure consumers don’t pay more, as he predicts the price of individual channels will rise. “If they could allow people to pick and choose, and allow people to save money at the same time, there’d be no problem with it,” Morrison said. “But I don’t think that’ll happen.” He said the government is starting a very complex policy process that it probably arrived at through focus groups testing. “In the absence of any rate regulation, there is no way a consumer, the viewer, will benefit from this. It just sounds nice,” Morrison said. “The government may not have availed itself of all the advice that could come through its quite sophisticated public service and the CRTC.” American research firm Needham & Company predicted in a report this summer that, under a pure pick-and-pay or a la carte model in the United States, the industry's annual revenues of $150 billion US would be cut nearly in half, as advertising dried up and subscriptions for less popular channels fell. The Public Interest Advocacy Centre said in an op-ed in The Wire Report on Thursday that critics are rushing to judgment. Canadians, PIAC said, pay an average of more than $185 per month per household for communications services, and want to pay only for the television services they consume. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Unbundling to overhaul broadcast distribution system, insiders say

News | 10/17/2013 10:07 pm EDT

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