Canada's Great Cable Unbundling: What's Ahead in 2016

Netflix - H 2015
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Netflix - H 2015

Canadian subscribers are set to pick and pay only for TV services they want, sending jittery broadcasters online and worldwide for new business opportunities.

It's been called Canada's Great Cable Unbundling.

Plans to allow cable customers to shop a la carte — picking, and paying, only for the channels they want piped into their homes — has triggered a seismic shift in the industry here and could in 2016 see local Canadian operations make bids to become global players.

Blue Ant Media is the latest Canadian broadcaster to make the leap. 

"Blue Ant is becoming an international company," Raja Khanna, CEO of television digital at Blue Ant told The Hollywood Reporter after his company pacted with U.S.-based Smithsonian Networks to launch a 4K wildlife production and distribution joint venture, based in the U.K.

"Earlier, we launched an international distribution division. Now we're announcing this joint venture in London. We also have our Los Angeles-based YouTube and online video network. So we are absolutely focused on building Blue Ant's business globally," Khanna added.

Closer to home, Blue Ant has also been rebranding channels and investing in content and marketing to ensure its channels appeal to consumers in a coming a la carte cable packaging world. That included Blue Ant rebranding its male-skewing comedy channel Bite as a female-focused crafting Makeful network.

Blue Ant isn't alone. To see the possible future of pay TV's financial model in the U.S. and elsewhere, look to Canada in 2016 as expensive, pre-packaged cable bundles start to unravel.

Bell Media signed new long-term licensing deal with HBO and Showtime that makes the broadcaster the new exclusive home of series from both popular U.S. premium channels. And the Canadian broadcaster and HBO inked an original series co-production partnership to jointly produce made-in-Canada series for the international market.

Elsewhere, Canadian broadcaster DHX Media decided not to renew its licensing deal for its Family Channel network with The Walt Disney Co. DHX Media instead signed a new TV series licensing deal with AwesomenessTV, which is majority-owned by DreamWorks, with whom the Canadian broadcaster will co-produce 130 half-hours of original cartoon fare for worldwide distribution.

Joe Tedesco, senior vp and general manager at DHX Television, said the Awesomeness TV shows should appeal to pay TV subscribers here as his company looks to lessen the potential impact of cable package unbundling. "We wouldn't have embarked on this strategy if we didn't have the confidence that the content that we're going to commission is going to be strong, in fact we think it will be stronger," he insisted.

What does the Canadian unbundling precedent portend for the U.S. market? Kaan Yigit, an analyst at Solutions Research Group in Toronto, said U.S. channels will be nervous over Canadian cable unbundling because the same consumer forces are in play on both sides of the border.

"The ability of the TV provider to demand more is quite diminished as the consumer is more value conscious and wants to pay for what they watch, and not for things they don't," he told THR.

U.S. cable channels during CRTC hearings earlier this year warned they may say no to Canadian cable carriers adopting pick-and-pay because of any precedent that may spill over into the U.S. market.

But Yigit predicted no American players will ultimately withdraw from the Canadian market if CNN and AMC are no longer bundled with MSNBC and BET on high-penetration tiers. "I doubt anyone can afford to leave any money on the table anymore. The big ones like Discovery, A&E Networks and Scipps don't have much to worry about as those channels are on most households' 'must keep' list," he said.

That said, Yigit insisted the negotiating power of channel owners is eroding, especially for those without a major network or live TV sports rights. "Sooner or later, a carrier might simply stop carrying all their channels, because their customer-value is less than what it was five to seven years ago," he said.

Mario Mota, an analyst with Ottawa-based Boon Dog Professional Services, said less popular U.S. channels on Canadian cable and satellite TV schedules will see a loss of subscribers in a coming pick-and-pay world. But he adds U.S. channels operating here will remain profitable as their main market is south of the border.

The same can't be said for local Canadian channels. "Pick and pay in Canada will not likely break a U.S. channel, but it could (break) some Canadian channels," Mota said.

Meanwhile, Canadian broadcasters are readying their game plans for the coming cable unbundling with varying strategies. Corus Entertainment secured the Canadian licensing rights to the Disney Channel and launched the popular U.S. brand in the Canadian kids TV market as part of a deal with the Disney/ABC Television Group.

The recent Canadian TV market gyrations are a prelude to broadcasters in 2016 finding out just how many subscribers will keep their current TV package when skinny basic and pick and pay options become available in March 2016. Starting then, customers will be able to pick and pay for cable and satellite TV channels after purchasing a basic package capped at $25 a month.

Broadcasters and cable carriers will then see whether, with the price per channel possibly to rise for pick-and-pay and small build-your-own-bundle options, consumers stick with their current cable bundles. After purchasing a slimmed-down basic cable package, Canadians will be able to add one or more Canadian, American or any other foreign channel on a stand-alone basis, or go for bundled channel packages that they assemble.

Canada's cable-unraveling scenario in 2016 will see popular U.S. channels like FX and AMC become available for purchase on their own, leaving American suppliers of popular U.S. primetime series to fend it alone for the first time since cable bundling was introduced in Canadian in the 1970s.

Canadian carriers reluctantly wading into the competitive fray, gearing up to battle for the attention — and dollars — of subscribers. Local broadcasters have already lost eyeballs to Netflix Canada and other online programming alternatives, but media giants like Bell Media, Rogers Media and Shaw Media could see Internet service divisions grow as broadband revenues increase as more Canadians supplement their cable with over-the-top digital services.

The networks have already seen much blood-letting as vertically-integrated media giants cut jobs and costs before March 2016, when the new a la carte regulations come into force. Hamilton, Ontario-based local TV station CHCH on Dec. 11 cut 71 full-time jobs and sharply chopped its local programming output as it filed for bankruptcy protection amid a declining national advertising market.

There's been similar job culls at larger broadcast players Bell, Shaw and Rogers. The cross-industry cost cutting is the latest sign of a broadcast sector feeling the strain of a soft advertising market and cord-cutting as audiences and advertisers increasingly go online to view TV shows, especially on Netflix Canada.

The continuing ad slump for free, over-the-air broadcasters has hit hard as networks here have long depended on U.S. network shows for audiences and ad dollars.