The Challenges to Consumer Choice in Television Programming Services

TELUS launched its IPTV service only a few years ago and subscribers are flocking to the service in droves, reaching over 678,000 subscribers in the short timeframe since its commercial launch.  There are many reasons to like Optik TV – it’s a cool service, fully digital, with the best video and audio quality and tons of features – but one of the main reasons consumers are stating for switching to Optik TV is their ability to better choose the services they wish to receive and pay for.

Clearly consumers want choice and that is something that is still proving elusive when it comes to television services.

Conflict between consumer choice and regulatory measures implemented by the Canadian Radio-television and Telecommunications Commission (CRTC) to uphold the Canadian broadcasting system and the creation of Canadian content is nothing new.  For years Canadians have been annoyed by not being able to access foreign services such as HBO or watch the American commercials during the Super Bowl. But these regulatory restrictions have allowed Canadian television programming services to flourish and multiply, all of which ensures that among the onslaught of foreign programming there is still pride of place for our own home-grown programming.  And place there is – there are now hundreds of Canadian television programming services available to Canadians from which Canadian consumers can choose.  The Canadian broadcasting system punches far above its weight class, when one considers the ratio between the number of Canadian programming services and the sparse population of the country.  These Canadian services are provided/available in addition to many foreign television services authorized for distribution in Canada, not to mention the numerous other sources of television content provided over the Internet by Netflix, Apple, Google and many others.

Canadians now have more choice than ever before in terms of programming services available for them to watch.  But concerns about freedom of choice remain.  The focus of the concern however is no longer as much on the ability for consumers to access the content they want but rather on the ability to pay for only the services they truly want.  This is now arguably the biggest challenge to the Canadian broadcasting system and many current proceedings before the Canadian Radio-television and Telecommunications Commission (CRTC) are forcing this important public policy debate to occur.

TELUS’ Optik TV model of providing a very small basic package to which consumers can add-on any number of small theme packs of discretionary programming services attempts to maximize choice for consumers. Providing greater choice and flexibility in the packaging of television services is very different approach from the traditional cable model which provides a “big basic” package, i.e., a large number of programming services in the basic package, and then a choice of multiple large tiers of additional programming services.  These large packages contain a mish mash of numerous programming services cobbled together with no theme or rhyme or reason, frustrating any consumer who doesn’t want to pay for services they don’t want and will never watch.

With Optik TV, if a subscriber likes news and current affairs programming, there’s a theme pack with just those services relevant to that area of interest.  Like sports? There are theme packs with just sports services.  Want family programming?  There’s a theme pack for that.  And so on.  There is never a requirement to take any specific theme pack and thus consumers have significantly more control over the programming services they receive and pay for with Optik TV.

But while consumers love the flexibility provided by Optik TV, the programming services distributed on Optik TV are less enthusiastic.  Why are the programming services averse to this exercise of consumer choice?  Because the exercise of choice by consumers means fewer services enter the home which in turn results in some less popular programming services suffering from lower revenues, in either subscription revenues or advertising revenues or both.  The fact is that the multitude of Canadian programming services has long been buttressed by a sort of tied-selling scheme, initially required by regulation, whereby new services benefit from being packaged, and thus tied, to more popular services.  This has led to bizarre commercial requirements for consumers à la: “Want TSN? You must also subscribe to Home and Garden TV to get it”.

Most of these packaging anomalies can no longer be attributed to CRTC regulation however.  Rather the onerous packaging requirements to which all distributors, including Optik TV, are subjected result from the exercise of market power by the large and highly concentrated media conglomerates which own all the top Canadian programming services.  And to make matters worse, these concentrated groups of programming services are also owned by the largest distributors, hence their ability to dictate terms in the market, especially to independent distributors such as TELUS.   I’ll expand on the significant concerns relating to vertical integration in a future blog.

But the CRTC is not completely off the hook – there remain rules which hinder consumer choice. Some “linkage rules” remain, especially with respect to third-language services.  The CRTC has special rules in place to protect Canadian third-language services.  In cases of services which broadcast mainly in languages other than English or French, the CRTC requires that Canadians must subscribe to a Canadian service in that language before they can subscribe to a foreign service.  This is why Optik TV subscribers who want to receive the Italian foreign service RAI Italia must also subscribe to the Canadian Spanish/Italian service Telelatino Network (TLN).  But TLN owns other services which broadcast in Italian and if it gets its way in a complaint recently filed with the CRTC against TELUS, then not only would Optik TV subscribers wishing to subscribe to RAI Italia have to subscribe to TLN, they would also have to subscribe to an additional TLN-owned Italian service.  If the CRTC allows TLN’s complaint, then Optik TV subscribers will have to take two Canadian programming services simply to receive one foreign service.  TELUS is very concerned with this attempt by TLN to force consumers to purchase double the number of Canadian services in order to receive the single foreign programming service they wish to receive.  TELUS’ comments relating to this complaint can be found here.  A decision from the CRTC in this complaint is pending.

More importantly though, the CRTC is considering some pretty significant incursions on consumer choice in an upcoming proceeding relating to the consideration of “mandatory distribution orders”.  The CRTC has the power to grant orders whereby programming services would be required to be distributed to all television subscribers as part of the basic television package that must be distributed by all cable, satellite and IPTV providers.  Such orders have been issued in the past and remain in force.  Examples include CPAC, the Accessible Channel, TVA and APTN to mention just a few.  Now the CRTC will be considering applications from 22 programming services for similar treatment.  Some of these applications are for new services such as proposals for an all Canadian feature film channel and an interactive channel to reach Canadian youth.  Some of these applications are for existing services which simply want regulatory protection to assure their business success.

If any of these services are granted mandatory distribution orders, this means that all television subscribers in Canada would be forced to receive, and pay for, that service.  TELUS was one of over 13,000 participants who filed written comments in this proceeding.  TELUS will also be participating in the oral phase of the CRTC’s hearing scheduled to begin on April 23rd.  For the most part, TELUS opposed the applications for mandatory distribution orders.  TELUS takes no issue with many of the services themselves and in fact TELUS hopes they get licensed to provide even greater diversity in the availability of programming services for Canadians.  TELUS is merely opposed to having these services forced onto its subscribers.  In its submission to the CRTC in this proceeding, TELUS argued that if the Commission mandates too many services for consumers to buy in their “regulated TV package”, then this will drive consumers out of the regulated system and onto other alternatives for accessing content which do not contribute to the Canadian broadcasting system at all.  TELUS urged the Commission to carefully weigh the potential benefit of these mandatory distribution orders against the risk of eroding subscriptions to the regulated system.

TELUS’ public policy stance stems from what we are seeing in the market.  Consumers do not want to be forced to take something they don’t want and some consumer marketing research shows that consumers will avoid restrictions on their freedom to choose even if it means paying a slightly higher price for greater choice.

The CRTC will be taking many decisions in the near future which will have a direct impact on consumers and the principle of choice, whether it is its decision with respect to the TLN complaint against Optik TV referred to above, the hearing to consider mandatory distribution orders, or the upcoming hearing to consider Bell’s application to acquire Astral Media which would further entrench Bell’s position as the most dominant player in the Canadian broadcasting system.  TELUS sincerely hopes the CRTC will listen to consumers because (to unabashedly steal a line from a related campaign) Canadians deserve more … choice.