un-bundled cable: is it really cheaper?

You may have heard on the news on Monday that the CRTC is beginning hearings called “lets talk TV” where, among other things, one thing that will be discussed will be to allow unbundled TV, or a la carte TV selection. Meaning you can pick the channels you want to buy instead of buying bundles.


Before we talk about this too much, we have to talk about how cable TV works today. It is simple and complicated all at once, but relatively easy to explain, and the concept is similar no matter who you get TV from, whether it be Shaw, Rogers, Bell, or Telus.


Everything starts with a basic cable bundle. This varies a bit region by region, but the basic concept is the same.  The CRTC mandates that certain channels be carried on “basic cable” Companies can apply to have their channels be carried on basic cable, but generally it is a smaller election. For example Shaw’s basic cable lists 41 SD and 23 HD channels on their basic plan. The majority of these are local channels, usually Global, CTV, CBC, City, Some US channels like NBC, ABC, CBS, and FOX, and then a select few channels like TSN.


Now these channels are not free to your cable company.  Cable companies pay what is called a carriage fee to air these channels. One of the reasons that the mandated basic cable package has so few channels is because the cable company must offer it to customers, but they still do have to pay for it. The CRTC has generally been very strict on which channels are on the basic package as a result. SUN Media recently lost a bid to have their SUN News Network carried on basic cable, for example.


For every other channel, cable providers have to pay to carry those channels. These are negotiated rates with the company that owns the channels. While the numbers are not released to the public the way it works is that the cable company pays a rate per subscriber of that channel, so if say, one million people subscribe to a certain channel the cable company pays a fee for every one of those subscribers. Again while the numbers are not public it is known that channels that drive bigger audiences and high ad revenue command the largest rates.  A channel like Treehouse may cost a cable company say 50 cents per subscriber per month but a channel like Sportsnet would command much more than that, possibly over 2 dollars per month per subscriber.  This means that assuming each channel would have the same number of subscribers of one million, a cable company would have to pay Corus Entertainment the owner of Treehouse, $500,000 per month, and would have to pay Rogers, the owner of TSN, $2,000,000 per month.  


This is where bundling comes in. a cable company will take a number of channels and bundle them into one rate for all of them. As a customer instead of seeing the cost for each channel, you pay one rate for a group of say, 10 channels. This means that on average you pay more per month for some channels than the cable company does, and in some cases less. The end result is that the cable company makes enough money to pay their carriage fees to all of their channels, as well as a profit (and a company making a profit is not a bad thing).  The provider I am looking at has packages called Best of HD, Sports 1 and 2, family, movies, entertainment, etc. This allows for some choice. If you want to watch sports and don’t have kids, you can subscribe to the sports packages, but not the kids oriented family package. However, in some larger packages there may be one channel you want and 5 you do not, and you are stuck paying for all of them regardless.  That has been a common complaint for years among cable subscribers.


That brings us to today, and the CRTC TV hearings.  One of the options being explored would be to allow customers to purchase individual channels instead of needing bundles.  The exception to this is that basic cable would still exist, and remain a requirement.  However, after basic cable if you wanted to subscribe to Treehouse, and only Treehouse, you could. Same goes for Sportsnet. Bravo, Golf Channel, AMC, etc. While we don’t know what the rates would be we could assume that different channels would cost different amounts based on tthe carriage fee the cable company pays. So paying for Treehouse may cost one dollar per month while paying for sportsnet may cost five dollars per month.


It really sounds like a great idea, only paying for the channels you want to watch. Until you do that math, that is. Sure in some cases it will be cheaper, but if you want more than a couple channels the bundling method will still be cheaper.


As an example, I will use an existing package from Shaw, their Movies package.  It includes, in the order listed on the Shaw website, FX Canada, Lifetime, AMC, Bravo, Movies, TCM, Sundance Channel, Silver Screen Channel, Action, Movietime, Rewind, IFC, Encore Avenue, and Documentary, and you pay $10/month for that package of channels. Now I will fully admit that I haven't heard of the majority of those channels, and it is likely that most reading this haven’t either. I’d also be willing to bet most people who subscribe to that channel do so for AMC alone. Some will like having Bravo, and FX (especially with FX carrying some saturday hockey games as part of Rogers’ new NHL broadcast rights), and to those of you who really want to watch the Silver Screen Channel, you have my appreciation.


What would happen if that package became unbundled, and you have to buy each one individually. I’d be willing to bet that subscribing to AMC, Bravo, FX, and Lifetime would cost more than $10/month, and that is just for 4 of the 14 channels in the Movies bundle.  Now some people will say that that’s fine with them, since they never watch the Sundance channel, or IFC, so they don’t care about them anyway, but why pay more for 4 channels than you would pay to get 14? Even if you only maybe watch one thing a year on Documentary, that is something you couldn’t watch if you only subscribed to those 4 channels that you are paying more for.  Are there scenarios where it would be cheaper? Probably. It would depend on the situation. But this is definitely not a scenario where it will benefit everyone all the time, which is what people seem to think.


There is also the long term potential effect on the TV industry. To be frank, in the movies package mentioned earlier, a channel like AMC essentially subsidizes a lesser known channel like Sundance, thanks to bundling.  Without that it is not likely that a small channel like Sundance would make enough money to continue operating, and would likely close.  This is true of many smaller and lesser known TV channels which in some ways depend on the bundling to make enough money through carriage fees to stay on the air. Regardless of everything else, losing TV stations would be bad for the industry in Canada.


So, is ending bundling the best solution for cable TV in Canada? No. Is it the worst? No. Ending bundling will not solve all of the problems, and it will likely create as many as it solves. I don’t know what the answer is, but it is not quite as black and white as we would all hope.