Analysis: Canadian cable TV's 'a la carte' menu begins to take hold
(Reuters) - A transformation in how some Canadian cable TV companies sell channels to consumers might be a sign of things to come in the much bigger U.S. market.
With "a la carte" pricing, cable companies are offering Canadians an alternative to "take-it-or-leave-it" bundles that effectively force viewers there - and in the United States - to pay for channels that they do not watch in order to get access to those they do.
The Canadian Radio-television and Telecommunications Commission pushed the change when the regulator "strongly encouraged" the introduction of more-flexible packages two years ago. And Canadian consumers seem to like what has been happening.
In the largely French-speaking province of Quebec, for example, industry sources estimate that 70 percent of viewers buy a very basic TV offering of mostly broadcast fare and then pay for small groups of cable channels from a long list ranging from Discovery Channel to BBC Canada.
Meanwhile, U.S. media companies are fighting the a la carte concept ferociously. Walt Disney Co, Time Warner Inc and others worry that subscribers will drop less-popular channels. And with fewer subscribers forced to pay for pricey channels like sports cable network ESPN, the cost will increase for viewers who want them, the companies say.
Needham Research estimates that a purely a la carte model would wipe out $70 billion in revenue for the U.S. TV industry and that fewer than 20 U.S. channels would survive if consumers had to pay for each one separately.
"The bottom line is that the Canadians are way ahead of the U.S. in this realm," said pay TV expert Jimmy Schaeffler of the Carmel Group.
FIGHTING AGAINST DEFECTION
More flexible programming packages may help U.S. cable companies prevent people from defecting to cheaper Internet-based offerings from the likes of Netflix Inc and Amazon.com Inc .
MoffettNathanson Research estimates that about 2.2 million U.S. households have canceled their cable video service since 2010. About 35 percent of cable video subscribers whom Ipsos polled for Reuters in August said they were considering such a move in the next six months.
In Canada, Vancouver-based Telus Corp, one of the nation's largest telecom companies, has used the a la carte strategy as a major selling point since it aggressively expanded its Optik TV service several years ago. Since 2011, the number of its TV subscribers, mainly Optik customers, has more than doubled to nearly 750,000.
Other Canadian cable companies have moved with varying degrees of intensity: BCE Inc's Bell has matched the pick-and-choose deal offered by Quebecor Inc's Videotron in Quebec. In the most populous province of Ontario, Rogers Communications Inc and Bell have been less open to such change.
Overall, the Canadian market is at a hybrid stage, combining bundling with some a la carte offerings.
For example, Telus offers a pared-down basic package without sports channels for a regular price of C$29 ($28.11) a month to people who also subscribe to its Internet, home phone or mobile phone service, and allows them to add up to 50 individual channels for C$4 each.
It may hurt the bottom line in the short term, but it also creates more loyal customers who combine a lower-margin TV subscription with more-lucrative services such as broadband, Telus Chief Executive Officer Darren Entwistle told Reuters.
"We've just taken a longer-term view for the service," he said, with the "significant" economic returns expected to come from the noncable services.
