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O Canada, home of a la carte?

Roku with Canadian flag skinThe Hollywood Reporter just published an eye-opening story on the attempt in Canada to push “a la carte” channel subscriptions. In what should be no surprise – but it probably is to some people – the uptake on a la carte has not been impressive. Consumers are put off by increased pricing for their broadband, required equipment, and per-channel fees.

This is an enlightening case study for the USA. In conversations with folks outside our business, and too many within it, the opening assumption is that a skinny bundle with 20 channels should only cost something like 1/10 of a regular, 200 channel pay TV subscription. But there are a couple of things that few tend to consider…

First, in the the case of internet-based skinny bundles, cancelling the “triple play” pay TV subscription to go “broadband only” will result in a much higher fee for broadband service. For instance, Comcast’s low-end Performance broadband-only service has a list price of $75/month (potentially lower for the first 12 months via promos). This doesn’t include any required equipment fees, etc.

By comparison, Comcast offers a base level triple play, with 140 channels, higher speed broadband than the above, and unlimited calling for just $90/month. So a cord-cutter doesn’t “save” $90 a month by switching to a la carte, he or she only saves a small portion of that because of the loss of the bundling discount.

Second, unbundling networks either for pay TV or online skinny bundles means the consumer has to pay the full value of each network. If one uses CBS All Access, which costs $5.99 a month, as a benchmark for a upper tier entertainment network, then six top networks would run a consumer $36 a month. Interested in sports? Those networks are likely to be even more expensive.

Thus for the sake of argument, let’s say a ballpark cost for a broadband-only, a la carte, self-bundled TV service of six top tier networks would run something like $110 a month. Add in perhaps two of the three main SVOD services – Netflix, Hulu, or Amazon Prime @ $15/month each – and now one is at $140 a month. The consumer is able to get exactly what they want, but it’s not saving them much money on a net basis.

Just like buying pizza by the slice, or buying the individual items of a McDonald’s value meal, buying the elements of a bundled product will always cost more than the bundle. This economic logic seems to escape people when it comes to a la carte TV – maybe it’s because TV is such a personal service, or people don’t really consider how they receive TV until they actually do try to unbundle.

Unbundling the future

All that being said, I expect there to be an “a la carte” world ahead – for some people. It may even go down to a la carte at the series level. But I think for many people, “TV” (or premium video, or whatever you want to name it) will continue to be a bundled product, whether it’s provided by the evolved versions of today’s MVPDs or dMVPDs. Most consumers don’t want to worry about 20 separate subscriptions and trying to figure out what streaming service they need to turn on to watch a particular program. There will always be a place in the market for services that make consumers’ lives easier.

David Tice is the principal of TiceVision LLC, a media research consultancy.
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