Koen Reynaert, McKim’s Media Director offers his insights into recent news in the Canadian TV industry.
The Canadian Radio-television and Telecommunications Communications (CRTC) held hearings recently that could dramatically impact how Canadians receive and pay for television.
The pick-and-pay channel option – where consumers can choose individual networks to receive on their cable service rather than having to purchase bundled packages of networks – was a major focus of the hearings. The CRTC is in fact proposing that satellite and cable providers be mandated to unbundle their services and offer pick-and-pay to all Canadian customers.
Research cited by CBC.ca cites that in the U.S., the average TV viewer subscribes to about 200 channels, but only watches about 10 to 15. Here in Canada, consumers must purchase prescribed bundles that include many channels, and many find their cable or satellite costs too high in relation to what they actually watch.
Is pick-and-pay for everyone?
I think pick-and-pay, which is sometimes referred to as à la carte, is a decent fix for the consumer. And, the CRTC will more than likely recommend that cable and satellite TV providers offer this to their customers in December.
But would there be hidden costs to consumers and how will it impact the industry? Cable networks – the content creators and owners – depend on cable subscription fees as a major part of their revenue. If smaller, less popular networks are unbundled from packages that contain major, popular networks, their revenue may fall dramatically. In sustaining their business, they could be forced to charge a premium for their service. And if some Canadian TV networks cannot survive reduced audiences, this will impact Canadian content.
The likeliest scenario will probably be a smaller base package that contains local and some national channels at about $20 to $30. Pick-and-pay will probably cost between $2 and $18 per network on top of that, or possibly more. So if, let’s say, a consumer decides to select only two networks, it could cost upwards of $25 on top of the base package. Factor that over the approximately 10 to 15 networks the average viewer watches, and you have a scenario where many Canadians will see dramatic increases in their cable television costs – not the reductions hoped for by the CRTC.
The fear factor
Some may call Canadian content a kind of fear factor. The CRTC’s mandate is to ensure there is sufficient Canadian content in the Canadian broadcasting industry. And that industry is complaining to the CRTC about Netflix, the world’s largest streaming service, who at this time does not have to comply with Canadian content rules.
Something cable and satellite operators tend to leave out of their arguments is that there are already many American TV networks available to Canadian consumers. And they obviously don’t offer Canadian content.
Did the networks forget? It’s more likely that American networks are sold in packages that contain Canadian networks, which for the time being satisfies the Canadian content issue. Regardless, the American stations strongly oppose Canadian content requirements, and are threatening to step out of the Canadian cable system entirely to find alternate ways to reach Canadian viewers, including “over-the-top” programming (OTT) or Internet streaming.
Here in Canada the majority of Canadian prime-time shows on CTV, CityTV and GlobalTV are simulcast shows imported from the U.S. That is, they are playing concurrently on their “mother” American network, and are not Canadian content at all. Further, in Canada we have a unique situation where the networks – the content owners and creators, are owned by the distributors – the cable and satellite companies. Shaw owns Global, Bell Media owns CTV, and Rogers owns City.
The Netflix conundrum
American and Canadian providers share the same so-called “opponent”: Netflix. Cable and satellite providers on both sides of the border are deeply concerned that, as the number of Netflix subscribers increase, it will negatively impact TV viewership rates. Ultimately, it may cause consumers to cut the cord to Canadian cable all together.
Worth noting is that Netflix offers local content to every country in which it’s available, including Canada. For instance, the CBC’s “Mr. D” is available on the Canadian Netflix site, and this situation is in my opinion a win-win. It gives Canadian TV producers an additional way to reach Canadian consumers. And selling shows to Netflix could provide to help pay for more local content.
The Prairies love their Netflix
Another important note from the recent CRTC hearings is Netflix’s refusal to disclose the number of subscribers it has in Canada. This resulted in a controversial move by the CRTC to strike all of Netflix’s comments from the hearing record. In reality, it shouldn’t be too difficult for the CRTC to estimate Netflix’s number of subscribers. According to an April 2014 report by MTM (Media Technology Monitor), 29 per cent of English-speaking Canadians 18 years old and older are subscribed to Netflix. And in Manitoba and Saskatchewan that number is even higher at 35 per cent.
Canada goes OTT
As an answer to Netflix, Rogers and Shaw have announced Shomi, an OTT service for their customers, which plans to contain 30 per cent Canadian content. Bell Media is also planning an OTT service, which will include all of HBO’s programming. And although Netflix has begun delivering some high-profile original content, it’s important to note that the vast majority of its “television” programming comes from other sources such as traditional networks and cable channels.
“Show me” the cord cutters
Rogers and Shaw will have Shomi, and Bell its own service, too. But these services likely will not appeal to the cable cutters, nor will they offer something Canadians probably want: a service that offers the latest series episodes from the main networks. Cord cutters may dream of a free “Hulu Canada”-like service by Bell, Rogers, Shaw, Corus or CBC that’s supported by advertising. Or even a paid “Hulu Plus Canada” version, which could still be supported by (limited) advertising.
But will that ever happen? In my opinion, probably not. Why not? Because Shaw and Rogers already offer Shomi. Because Shomi is not offering new content. And because they probably couldn’t negotiate rights with the American networks.
If such a service did come to Canada, it would probably attract those Canadians who’ve cut the cord. After all, if you offer your product where consumers are already experiencing a good product, history shows they are more likely to commit.
In my opinion, it may also be in the CBC’s best interest to have a look at the iPlayer service, which is the BBC’s streaming television and radio service and allows users to watch recent programs on various internet-enabled devices. There is an opportunity for the CBC to adapt its mandate and move into a new phase, where it could create a similar service for Canada on as many platforms as possible, and where it could offer more than 80 per cent Canadian content.
Old habits die hard. For now.
It is interesting to note that research indicates that the vast majority of Netflix subscribers keep their cable subscriptions. This group watches an additional five hours of cable/satellite per week, while watching less traditional broadcast TV. So clearly, Netflix has an influence on the viewing habits of its subscribers: they watch more hours of video overall, but less hours of TV from the traditional networks.
The expectation is that cable/satellite subscriptions will drop, which will impact how advertisers reach their audiences as well as how content is made, paid for and distributed. Disruption is not new in the television business. But advertisers and agencies are confident there is still a future for TV and for broadcast advertising as a means to reach a broad and large audience. News and live (sports and entertainment) TV content – which currently delivers the largest broadcast television audiences — will continue to be key. The true winners will be able to take elements beyond the classic TV platform and into digital distribution platforms.
Is TV dead? No, but if you love it, you better believe in reincarnation. Or at the very least, reinvention.