U.S. TV networks may abandon unbundled Canadian cable for online

Some major U.S. television networks say they'll pull out of Canada or consider streaming all their content online if a proposal to unbundle Canadian cable packages and let customers pay for a few select channels goes ahead.

The comments by some of America's biggest television networks were made duringCanadian Radio-television and Telecommunications Commission (CRTC) hearings earlier this month.

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At the "Let's Talk TV" series of hearings, the broadcast regulator was looking into proposed rule changes that would govern the television industry in Canada.

Currently, cable televisionchannels are sold to consumers as part of group packages, where in addition to channels thatusers knowthey want, they also get access to many others, in the hopes that they will find something of interest there, too. The packages aredesigned to attract audiences to watch channels they wouldn't otherwise order.

This is a consumer welfare destroying death spiral.- Viacom executive Keith Murphy

Under a system known as "pick-and-pay" that the CRTC is considering allowing, users might be able to custom-make a package of cable channels that appeal to them, and not have to pay for any others.

It sounds like anappealing prospect to some consumers, but U.S. television networks thatmake some of the most popular television shows in Canada say if it comes to pass, they might just bypass Canada's airwaves altogether.

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"Mandating pick-and-pay will reduce revenues and increase costs of programming services, leading to less production, lower quality and the withdrawal of some programming services from the market," said Keith Murphy of U.S. media giant Viacom, which supplies content to numerouschannels that operate in Canada including BET, YTV, Spike, MTV andThe Comedy Network.

"This is a consumer welfare destroying death spiral," Murphy said in a submission to the CRTC earlier this month.

May leave Canadian cable

It's bleak language, but it's a view shared by other American media companies.

Under current rules, U.S. content creators like Viacom and others usually sell the rights to broadcast their shows in Canada to Canadian networks. Known in the industry as BDUs(broadcast distribution undertakings),Canadian networks then make money from those dealsby selling ads on the Canadian broadcasts of those shows, and getting cable customers to sign up for large, diverse cable packages that include channels that air those shows.

From the television industry's perspective, it's a model that hasworked well for both sides for decades. Consider what executives at AMC, the makerof wildly popular shows like Breaking Bad and The Walking Dead, told the CRTCinits submission.

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"The level of investment and creative risk required to create groundbreaking original programscould simply not be supported if AMC was marketed as an a la carte service," AMC'sexecutive vice-presidentJamie Gallagher said.

Laura Van Soelen, a lawyer from Gowlings who spoke on behalf of AMC at the hearings, said the current system works the way it's supposed to by using popular content to find an audience for new shows. Canadianscan't currently get AMC in Canada, for example, without also getting the sci-fi channel Space. By bundling those channels together, millions of Canadians were able to discover the award-winning Canadian-produced Orphan Black, Van Soelennoted.

Canada's biggest cable company, Rogers,agrees, with executive DavidPurdy telling the commission that about half of the company's customers say they wouldcancel their subscription if they lost access to premium U.S. channels like AMC.

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"AMC, A&E, TLC these are the types of services that could either come in over the top or do a deal for all their content with Netflix," Purdysaid. "We lose them from the ecosystem we lose I think a part of the reason the number of people stay with us today."

Change that system, U.S. television makers say, and they'll be forced to consider pulling out of Canada's airwaves altogether or worse still for the Canadian industry, broadcasting directly to consumers online.

Streaming threat

"Due to this lack of regulation, Viacom is seriously considering distribution in Canada through ... the internet as a possible solution if traditional distribution becomes uneconomical due to new rules being imposed by the commission," Murphy said.

U.S. content streaming company Netflix has made huge gains in Canada by doing just that,streaming unlimited content to Canadians over the internet for $9 a month. In industry parlance, Netflix-like services are known as "over the top" or OTT services because they bypass cable rules altogether.

It's an option U.S. networks are keenly aware of. "Non-Canadian programming services have an array of options for moving their content to OTT domains," Van Soelen said. "In addition to partnering with Netflix, each could create its own [or]they could collectively create a new [service] making the broadcast system the second or some later window for programming content.

Although it stopped short of hinting at a streaming service, A&E made a similar threat in its submission.

"Under the proposed new rules, [A&E] will be forced to examine our current distribution in Canada to determine the economic viability of operating our business in Canada," network executive David Zagin said, "including blacking out programming where the costs to clear Canadian rights are too high or possibly forgoing BDU distribution in Canada."