Cheaper by the Dozen - Broadcasting & Cable

Cheaper by the Dozen

U.S. lawmakers eye value of Canadian cable's à la carte model
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What's the difference between the U.S. and Canada? About six bucks, if you're an average cable subscriber. That's how much Canadians typically can save on their monthly cable bills when they take advantage of cable operators' offer to let them choose a big chunk of their channel menus themselves.

Unlike subscribers in the U.S., Canadian cable customers are allowed to pick a large portion of their cable lineups after buying 22 basic mandatory channels, either by buying one or two individual channels or by customizing their own lineup of 20 or more additional ones.

This "à la carte" service is relatively new in Canada. In little more than a year on the market, 15% of so of Canadian subscribers have chosen the option, says Jean-Paul Galarneau, spokesman for Videotron, Canada's third-largest cable company. Of those, the overwhelming majority patch together a full lineup of 20 or more additional channels.

Canadians who buy Videotron's 20-channel à la carte tier pay roughly $36 a month in U.S. dollars versus the $42 they'd pay for the next largest package of channels. Americans, who pay $40-$50 for a set lineup, could enjoy similar savings if they were permitted to weed out channels they didn't want, argues Consumer Union.

Much to the dismay of the U.S. cable industry, the à la carte idea is catching on in Washington.

Programmers warn that the loss of potential viewers and ad dollars will starve smaller networks, like Biography, into extinction. Conversely, powerhouses with high costs, such as ESPN, would be forced to jack up monthly rates to $15 per sub if they're no longer subsidized by a base of cable customers.

"It sounds good, very consumer-friendly," Time Warner Cable Chairman Glenn Britt said at a recent Washington luncheon. "Customers would pay only for what they want to watch. But it isn't that simple. It isn't that neat."

Still, the Canadian model is being closely examined by U.S. officials.

On July 29, the FCC will hold an all-day symposium on à la carte. Leaders of the House Commerce Committee, who held their own hearing last week, have asked the FCC to deliver a commission report Nov. 18. (Senate Commerce Committee Chairman John McCain is a proponent.)

Some see it as a possible blueprint for reducing cable bills, which rose 8% in 2003. Others see à la carte as a boon to parents who don't want their kids exposed to the violence or sex of standard U.S. cable fare, such as the brutality of FX's The Shield
or the booty-shaking on MTV.

One catch: To go à la carte in Canada, subscribers must buy a digital service and rent a converter box. Still, a digital-cable subscriber in Canada can put together a customized package of channels for less
than the average American analog subscriber pays for conventional expanded-basic service.

Here's how it works: Videotron's à la carte option requires subscribers to first buy a basic digital service, which costs $19.48 U.S. a month for the 22 channels mandated by the government. In Montreal, for instance, Videotron's basic package includes the local broadcast channels, a Canadian Broadcasting Co. news channel, U.S. channels from nearby Vermont, 14 local radio stations and pay-per-view channels.

After that, customers can pick extra channels one by one, in bundles of five or six channels, or in larger lineups of 20, 30, 65 or 106 channels. The choices include familiar U.S. offerings, like A&E, Animal Planet or versions of U.S. networks featuring more Canadian performers: think MTV Canada and Court TV Canada. Homegrown offerings, such as the regional sports channels produced by Rogers Cable, the largest Canadian cable operator, are included, too.

Even though digital cable penetration in Canada lags behind the U.S.—22% vs. 30%—Videotron expects robust growth, thanks, in part, to à la carte offerings. "Each time we add a new digital service or package," Galarneau says, "subscribership climbs."

Despite the success, Canadian cable execs warn that duplicating their model in the U.S. would be mistake.

Canadians don't worry about losing diversity; Americans would lose the variety that has been the hallmark of U.S. TV, says Michael Hennessy, president of the Canadian Cable Television Association. Because the government grants monopolies to Canadian programmers, choice doesn't exist.

"You have one choice," Hennessy says, if you want a movie channel, headline news, sports or sci-fi. "You can't get Fox News or Nickelodeon, no matter how much our customers demand these services."

Consumers Union analyst Kenneth DeGraff thinks it's time to let Americans decide for themselves: "We hope U.S. cable operators will see what's going in Canada as a way to create new value for subscribers."

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