TUESDAY’S ARTICLE ON PACKAGING flexibility, the cost of sports, and the evolving demands of consumers unfortunately misinforms and misleads readers by providing a narrow view of a complex ecosystem. Several important facts are worth pointing out. (Note, for simplicity I’ll use “cable” to represent all cable, satellite, and IPTV distributors, except where specified).
FACT: Content costs are indeed increasing.
Creating and acquiring content is frustratingly immune to productivity and efficiency improvements demonstrated in industries like computers and technology. Creating content is entirely a people business. The cost goes up every year. And sports content costs are increasing the fastest. But it’s not just the cost of rights that are increasing, it’s also the cost of sports production. Over the last decade, our talented team at TSN have invested tremendously to improve our game coverage and our delivery. Without a doubt, the home viewing experience for sports has never been better.
FACT: Broadcasters do NOT “willingly pay” increasing costs.
Concluding otherwise would be nonsensical. Negotiations for the right to broadcast sports are the most complex and intense I have ever seen in over 25 years of business experience.
FACT: If TSN doesn’t pay the market rate, consumers would very likely be worse off.
If neither TSN nor our principal competitor agree to pay the market rate, without a doubt, the sports team or league would launch their own channel, and wholesale it to cable companies themselves. In this scenario, the wholesale cost, and thus what the consumer pays, will be much more than what it is today. Five or six channels in every major market carrying different sports will definitely cost far more than what TSN and Sportsnet charge today.
FACT: The wholesale cost of TSN has increased.
However, the glaring omission here is that the TSN wholesale rate for basic carriage was held flat (i.e. no increases) by regulation since 1992, and only deregulated in 2010. A market adjustment was long overdue. What other high-quality product has had effectively zero increase in price for nearly two decades?
FACT: Sports television is a bargain in Canada.
Our wholesale rates are confidential. However, I can tell you the leading sports channel in the United States charges wholesale rates that are more than double that of TSN, and that’s without the flexible packaging that we offer.
Adding together the wholesale prices of TSN and Sportsnet, along with TSN2 and Sportsnet One, results in an overall cost well under $5. For this price, Canadians have access to all mainstream sports. For most major markets in the U.S., to get all mainstream sports, on a local and national level, the wholesale cost is estimated to be between $12 and $15. In L.A. and New York, it’s estimated to be approaching $20. The wholesale cost of sports in Canada, at under $5, is a bargain. I know I pay a lot more for gasoline, books, milk, eggs, cars, and everything else in Canada than I did when I lived in the U.S. We should appropriately acknowledge the value delivered to Canadian consumers from cable in general and sports programming more specifically!
FACT: Consumers want more choice and flexibility in their cable packaging.
We unequivocally support this! Bell Media offers a flexible packaging pricing structure – which we call PBRO (Penetration-Based Rate Option) – to all cable companies. Consumer packaging decisions are made by the cable companies, who have everything they need from us to innovate and meet our mutual customers’ demands. This flexibility allows consumers to purchase packages that do not include sports channels, if they so choose.
The CRTC studied the issue of packaging flexibility for 10 months in 2011 and 2012. During that time, mountains of evidence, opinions, and history were provided and extensively debated and reviewed. There were numerous hearings and face-to-face negotiations. In the end, the CRTC determined that “a balance must be struck between allowing a BDU to provide its subscribers with more choice and flexibility, while providing programming undertakings with reasonable and predictable levels of revenue.” They further stated that “It would be unreasonable for a BDU to expect flexible packaging for a given programming service while insisting that it be provided with rates similar to those provided under a set packaging option. The Commission considers that, in return for the increased flexibility, the programming undertaking may reasonably request higher wholesale rates from a BDU.”
Now, the decision says a lot more. But it’s reasonable to conclude that the CRTC endorsed not only Bell Media’s PBRO model, but also the specific rates for our specialty services under PBRO through this process. The regulator reviewed packaging flexibility in great depth and made an informed decision for a balanced outcome to benefit consumers. So why do some cable companies constantly want to re-argue this issue? Quite encouragingly others are moving on: two of the largest independent cable distributors have fully adopted Bell Media’s PBRO.
FACT: The PBRO model’s volume pricing foundation is already witnessed in virtually every industry, including ours.
Our PBRO mirrors exactly what the “anonymous” cable operator discussed in the article: “we are already seeing the availability of an HBO series selling on iTunes at a much higher cost when compared to the cost of a traditional monthly subscription.” So consumers can subscribe to TMN for approximately$20 a month and get a huge variety of movies, plus HBO and other TV series, or they can buy one HBO episode at a time for approximately$4 on iTunes. When you buy less, the unit price is higher. This is a logical and well-established practice. The unit price discount for higher volume is also set to motivate consumers to buy more.
Cable retail pricing also reflects this principle. When Rogers ran its flexible packaging trial in London, Ontario, consumers paid approximately250% more per channel for a “small” package when compared to a “large” package. All cable companies price this way, not just in trials, but in everyday pricing.
FACT: Our current broadcasting distribution system is quite successful and should be celebrated.
Canadians enjoy far more variety at a lower cost than other countries, and they show their satisfaction with their wallet. English-language consumers can choose from nearly 500 channels, including numerous U.S. services, multiple foreign language services, time-shifting options, and virtually every niche category you can imagine. In 2012, according to data from Bank of America/Merrill Lynch, Canadians paid an average of $65 per month for cable TV ($67 removing the leading French-language provider) while in the U.S., they paid on average of just over $80. For Canadians, this works out to 22µ per hour viewed! That is an incredible entertainment value! Consumers always want to pay less, but when viewed objectively, the cost of cable in Canada is very consumer-friendly. We have more Canadian content in production than ever before in our recent history. And we are successfully airing Canadian programs up against big American series. Finally, penetration of cable TV in Canada is about 90% of households, the highest of eight developed nations tracked by the CRTC.
Bank of America/Merrill Lynch reports that in 2012 Canadian cable profit margins were 49%, compared to just 39% in the United States (only cable, not satellite or IPTV). Since consumer prices are lower in Canada, the low cost of our content is a major factor in their profitability. The cable companies’ demand for even lower content costs, despite their healthy profit margins (and our collective success keeping consumer costs low), is clearly unsupportable.
Yes, our industry is changing fast and we all need to adapt. But let’s not break what is working in the process of transforming ourselves.
At Bell Media, what drives us and what ensures our current and future success is an unrelenting passion for content, for delivering what viewers want, and for ensuring that the cable subscriber is ultimately well served. This means delivering the best content, on all screens, at an affordable cost. And it includes flexible packaging. Your article suggests that there is yet a day to come “where Canadians will be able to enjoy more choice and flexibility in their TV package choices.” Bell Media has already provided cable operators the tools to do just that, so that day should be TODAY.
Kevin Crull
President, Bell Media
