Channel unbundling to have ‘unintended consequences,’ says consultant

GATINEAU, Que. — While the public will generally back the CRTC's decision to require TV service providers to offer pick-and-pay to customers by the end of next year, they don't understand the full consequences for the Canadian TV industry, one media consultant said in the wake of Thursday's announcement. Norm Bolen, who used to be CEO of the Canadian Media Production Association (CMPA), said in phone interview that the mandated unbundling of TV packages will lead to a lack of diversity in the programming available to Canadians. And, he added, some consumers will be surprised by how the coming changes affect them. "Some people are going to be surprised when the channels that they really like — even though they're relatively smaller channels with smaller audiences — disappear completely from the system," Bolen said. "They'll say, 'Oh, I didn't know I was going lose my channel when they did that. I thought I'd just be able to choose.' " The CRTC announced Thursday that TV providers must offer a skinny basic TV package, priced at no more than $25 a month, by March next year. The skinny basic service must include local and regional over-the-air stations, public interest channels such as the Cable Public Affairs Channel (CPAC), educational channels and, if available, community channels and provincial legislature channels, the regulator said. Providers will be allowed to supplement basic packages with “stations affiliated with the American networks ABC, CBS, Fox, NBC and PBS,” and local radio stations, as well as non-local Canadian over-the-air stations in some markets, but must do so at no additional charge. TV providers will be allowed to offer other basic packages with more channels, but only in addition to the skinny-basic packages, it noted in the decision. By next March, TV providers must offer either pick-and-pay, or a choice of either self-built packages or small pre-assembled packages, for channels outside of the entry-level basic, the CRTC said. By December 2016, they must offer customers both of those options. Some service providers with analog connections and others that do not have the means to implement these changes will be exempt. “I think there will be a more dynamic marketplace, so that will create a more dynamic downward pressure on pricing,” CRTC Chairman Jean-Pierre Blais said in an interview with The Wire Report after the decision was announced. Regarding channels that might disappear and Canadians who would be upset at their loss, Blais said: “The commission can’t be in the job of protecting everybody’s business case, including bad business cases.” Channels with very small audiences might be better off online, perhaps on YouTube, he said. “It’s always tragic at the individual level when companies go under, or decide to close their doors, but it’s our belief that a healthy ecosystem requires some companies to go under and just face the market reality,” Blais added. “We can’t be in the business of always sending out lifesavers.” In the decision, the CRTC said that its implementation plan “includes a transition period that balances the objective of providing Canadians with pick-and-pay options as soon as possible with the practical reality that distributors will need time to fully implement the regime.” It said that the unbundled channels must “innovate and improve their programming” in order to remain appealing to Canadians. As a condition of authorization, non-Canadian specialty channels will have to be offered on a pick-and-pay or small-package basis. During the Let's Talk TV process, some expressed worries that that U.S. specialty channels might pull out of the Canadian market. “We know that Canada is probably the second-largest market after the United States, so it’s not an easy market to put a full X on. ... I think they’ll think twice,” Blais said Thursday when asked about this worry. Heritage Minister Shelly Glover, who directed the CRTC in late 2013 to study the implications of pick-and-pay TV, said in an emailed statement Thursday: "We welcome today’s decision by the CRTC. Our government understands that Canadian families expect choice and fair treatment when it comes to their spending on everyday items and services. It is our belief that Canadians should no longer have to pay for channels that they do not want in order to watch the channels that they do." Shaw Communications Inc. CEO Brad Shaw said in an emailed statement that the company supports the CRTC's "commitment to maximize choice for Canadians." Shaw added that, along with the CRTC's previous decisions, Thursday's announcement signals "a bold yet balanced and orderly policy framework that will give Canadians increased choice, while providing producers, broadcasters and distributors more freedom and flexibility to innovate and create the next generation of content experiences for Canadians." He added: "While this new regulatory environment will not be without challenges, the commission has provided real opportunities for Shaw to continue delivering the best content experiences possible for our customers and viewers within a healthy, dynamic and competitive environment.” Patricia Trott, spokeswoman for Rogers Communications Inc., said in an email: "We know consumers want more flexibility and we started down this path several years ago. We already offer dozens of services à la carte and in theme packs. This decision gives us more certainty so we can offer customers even more choice." Scott Henderson, spokesman for BCE Inc.'s Bell Media division, said in an email there would be no comment coming Thursday from Bell's media or distribution arms. Quebecor Inc. also declined any immediate comment, company spokesman Martin Tremblay said in an email. Ann Mainville-Neeson, Telus Corp.'s vice-president of broadcasting policy and regulatory affairs, said in an emailed statement that the CRTC's decision was "a real win for Canadians." She added: "Telus' approach to TV is already very similar to that envisioned in today’s CRTC decision." Louise St-Pierre, president of Cogeco Cable Inc.'s Canadian division, said in a press release that the company is "pleased with the decision announced today. We strongly believe that the best and most effective way to satisfy the expectations of Canadian consumers is to continuously adapt and meet their needs. We feel the CRTC's decision reflects this belief and will further ensure Canadian consumers remain engaged in the Canadian broadcasting system." Advocacy group Friends of Canadian Broadcasting warned in a press release that a pick-and-pay regime will lead to the loss of up to 17,000 jobs and more than $2 billion in revenue a year by 2020. Canaccord Genuity analyst Dvai Ghose said in a research note that the regulatory changes will bring "a real negative impact ... on the content providers and vertically integrated carriers" as consumers subscribe to fewer specialty channels and revenue per TV subscriber falls as much as $21 a month in some cases. Bolen said the changes taking place will ultimately weaken the TV broadcasting industry and lead to less support for Canadian content, particularly when combined with other directives announced by the CRTC last week that included a reduction in the amount of domestic content required on TV. "It's something that consumers, on the face of things, are going to find very populist and very popular," Bolen said of Thursday's announcement, "but I think there are unintended consequence or consequences consumers may not be aware of." "The biggest problem with this is it's going to reduce diversity in the broadcasting system because a lot of the smaller players now who are bundled with other channels in a pick-and-pay environment, over time, will disappear. ... Now, if you're a Darwinian capitalist, you'll argue, 'Well that's just the way it is; just let the market decide.' But that's not the way the broadcast system works; it's a regulated system." The CRTC said Thursday that providers will have to "offer" a preponderance of Canadian channels to their customers, a change from previous regulations that stated subscribers must "receive" a preponderance of Canadian services. Vertically-integrated providers will have to “offer one English- and French-language independently-owned channel for each of their own nglish- and French-language channels,” as of September 2018, the CRTC said. The CRTC also said it will eliminate the multiplexing of services, such as HBO Canada, which is currently only available in a bundle with TMN or Movie Centre. The CRTC press release added that in order to “provide Canadians with a greater choice of providers, the CRTC will allow cable companies with fewer than 20,000 subscribers to enter and compete in new markets without having to first obtain a licence.” Before the skinny basic and pick-and-pay rules come into effect, the CRTC will consult on a revised wholesale code of conduct, which would come into effect by September. The regulator said in a press release that the code would “clarify the wholesale relationship between cable and satellite companies and broadcasters, and ensure the fair negotiation of terms and conditions for the distribution of channels.” A current wholesale code is mandatory for some TV providers, such as Bell, as a condition of licence and functions as a guideline for others. Once the revised code comes into effect, it will be mandatory for all providers. The CRTC press release said that proposed code will not allow agreements that prevent channels from being distributed individually or in packages built by the customers, that impose bundling requirements or prevent modifications to existing bundles, or “set minimum penetration or revenue guarantees.” In the notice of consultation, the CRTC said that prohibiting practices that limit the “packaging flexibility” of TV providers “will help ensure that programming services, particularly those owned by vertically integrated entities, do not restrict the ability of BDUs to respond to subscribers’ demands for increased choice and flexibility.” The code will also require TV providers “to offer independently-owned channels in at least one pre-assembled bundle” and require vertically integrated companies to “ensure that independently-owned channels are given packaging and marketing support that is comparable to that given their own services” and ensure that “all channels are able to more fully exploit their program rights on all platforms and that cable and satellite companies are able to develop and implement multiplatform strategies,” it said in the release. In the notice of consultation, it noted that some broadcast distributors have asked the CRTC to prohibit unreasonable penetration-based rate cards, but said that the CRTC is “of the view that PBRCs should be the subject of negotiation between programmers and BDUs based on the notion of shared risk." It added that PBRCs "that cannot be justified on a commercial basis or that are anti-competitive will be considered ‘unreasonable.' ” The CRTC put out a call for comments on the new wholesale code with a deadline of May 4, and May 14 for replies. Bolen said a revamped wholesale code is a positive step but he doesn't think it will be enough to neutralize the damage unbundling does. "They make a dramatic change that has potential negative consequences for the system, and then they want to have a consultation to come up with compensatory measures that can somehow compensate for the damage they they've caused. That's the way I see it. ... I'm not sure that's going to be very successful." — With reporting and editing by Anja Karadeglija at akarad@thewirereport.ca and Derek Abma at dabma@thewirereport.ca

Channel unbundling to have ‘unintended consequences,’ says consultant

News | 03/19/2015 7:34 pm EDT

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