Will TV bills rise with channel choice?
LOS ANGELES >> Can you save money if you pay only for the TV channels you watch?
The question will be put to a real-world test in Canada starting Tuesday.
TV executives in the U.S. and Canada have long argued that the best value for your money comes through packages of hundreds of channels. You might not want every football game or Korean drama, but you can usually find something to watch when you plop down on the couch. When everyone buys a big package of channels, the cost of each is spread thin. Your monthly cable bill reflects that lower per-channel cost, even if you watch just a few channels.
And though you might gripe about paying for all the channels you never watch, the price of each channel could rise a lot if fewer people chose to pay for each one individually. The industry has also resisted offering full choice because overall subscription and advertising revenue could decline. Some channels might not survive at all.
"We don't sell it alone right now because we generate more revenue by being in a larger package," ESPN President John Skipper said at the recent Code Media conference. Asked if the leading sports network would cost too much on its own given the rising cost of sports rights, he replied that was "just a hypothetical and ultimately, specious mathematical problem."
Today, there are more alternatives to traditional TV than ever. Millions of U.S. households have dropped big pay TV packages in the past few years and have turned to online services such as Netflix, Hulu and HBO Now.
The question is: Who will win and lose if every channel goes it alone?
The first step in Canada's government-mandated plan is partial. At first, pay TV providers only have to offer slimmed-down basic package for $25, with theme packs like sports or entertainment channels as add-ons. Some U.S. cable and satellite companies are already starting to offer slimmer packages, such as Sling TV from Dish for $20 a month.
Full channel choice, or a la carte, is due in Canada by the end of the year. In the U.S., you can only buy certain networks a la carte like HBO, Showtime and CBS, which are offered online. A U.S. regulatory push for an a la carte system died in 2007, but might be revived if the Canadian plan catches on.
"We will find out as this whole system rolls out, are you really going to pay less money? Or are you going to pay a hell of a lot more for (sports network) TSN than you thought?" says Lawson Hunter, a former Bell Canada executive who has criticized the unbundling plan.
Ali Yurukoglu, a Stanford economics professor, co-authored an a la carte simulation paper in 2011. In it, TV customers cut the number of channels they received in half, to about 20. But after the surviving channels renegotiated deals with cable operators, consumers had to pay twice as much for each channel. People ended up paying 2 percent more overall.
"Our predictions were that the average consumer would be no better and no worse off," he said.
Ahead of the Canadian rollout, major cable operator Rogers Communications began offering two sports add-ons — TSN and Sportsnet — at $18 each, bringing a sports fan's bill to a minimum $61 a month, not much below the $66 a month for a similar sports-included package that has 230 more channels.
Unbundling might not be all bad, Rogers CEO Guy Laurence told analysts in January. Because people can pay less under a la carte, "we may see the return of some people who have left cable TV."
There have also been concerns that smaller, niche channels won't survive. Yurukoglu believes that won't matter much, because successful programs can migrate to the surviving channels.
A la carte might also make some channels stronger, by concentrating subscriber fees on the channels that consumers actually want, Yurukoglu says. For example, AMC, backer of the hit show "The Walking Dead," could do even better if fans of the show didn't have their monthly bills spread to less-popular channels.
AMC Networks Inc. CEO Josh Sapan told an investor conference in December his company is already preparing for that post-apocalyptic future.
"We will not only survive, but we may even thrive," he said.
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