It’s like buying the whole supermarket when all you want is milk and eggs.
That’s how DBRS analyst Chris Diceman characterizes the market for subscription TV in Canada. Customers who want cable or satellite are faced with a basic package of channels that are chosen for them. And it may soon lead to a backlash, according to a report on the communications industry that will be released by DBRS on Tuesday.
“The Internet has really created choice for the consumer and has really empowered the consumer,” Mr. Diceman said in an interview. “The impact it has had on both communications and media is nothing short of revolutionary.”
Consumers have been conditioned by their use of online resources, particularly in media, to expect more choice. YouTube offers searchable short videos; Apple’s iTunes store allows the download of individual movies and TV episodes; and since last year, Netflix has given Canadians the option of a $7.99-a-month subscription service with TV and movie content.
Of course, Netflix’s selection is still limited and the jury is still out on the real threat of such “over-the-top” Internet services to take customers away from cable. But the DBRS report contends it has empowered consumers to demand more control over what they watch, when, and where – and how much they pay for it.
This is especially important in Canada, where the kind of high-speed Internet needed for such data-heavy activities as TV and movie viewing is so widespread. Residential high-speed has reached about 70 per cent of households, the report estimates, and should be at 80 per cent by 2016.
The report predicts that to tackle the threat of alternatives, TV subscriptions will move toward more of a pick-and-choose model. If they don’t, they could face a “revolution” among subscribers, DBRS contends.
In Quebec, both Bell TV and Vidéotron offer some à la carte options, and Shaw offers a Plan Personalizer with greater choice, but many channels are still included in bundled tiers.
At a hearing in June, the chairman of the Canadian Radio-television and Telecommunications Commission, Konrad von Finckenstein, challenged the TV distributors as to why they could not offer more scaled-down and cheaper “skinny” basic packages as well as more “pick and pay” options for additional channels.
In fact, the CRTC is currently mulling over the possibility of mandating a skinny basic service, and also whether to ask that TV providers give more à la carte options for channels. It is likely to announce its position on the issue within the next couple of weeks.
There is some industry resistance, partly because TV providers depend on bundles for bigger profit margins.
And specialty channels depend on the reach those tiers of coverage give them in order to maintain subscriber revenues. The children’s channel Treehouse, for example, receives a cut of subscriber revenues from roughly six million households because it is available on extended basic packages in many places. If that were scaled down and only homes with children in the age demographic chose to subscribe, it would limit the channel’s ability to buy content – and fund the Canadian programming it is required to air, president John Cassaday told the CRTC.
Rogers digital basic: $35.97 a month
Video-on-demand rentals of new releases (assumes four a month): $32
Netflix: $7.99 per month
Supplementary Netflix-like service (e.g. Hulu Plus if it launches in Canada): $7.99
Apple TV (assumes four new release movies downloaded a month): $23.96
Assuming a Rogers Express package (one of the most popular that costs $46.99 a month), total usage exceeds the plan limit by over 19 gigabyte a month. Overage charges at $2 per GB: $38