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After Canada’s TV regulator on Thursday ordered pick-and-pay TV channels and a skinny basic cable package for consumers by December 2016, analysts on Friday were bullish on how cable unbundling will impact domestic cable and satellite providers.
“Given that the price per channel is likely to be a lot higher with both pick-and-pay and small build-your-own-bundle options, we suspect that most consumers will stick with the old system for a long time, if not forever,” TD Securities analyst Vince Valentini said in an investor note. After purchasing a slimmed-down basic cable package capped at $25 per month, 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.
That cable-unraveling scenario 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 lose Canadian bundling arrangements first introduced in the 1970s.
Scotia Capital analyst Jeff Fan in his own investor note said cable and satellite TV operators were likely to preserve margins in a pick-and-pay and pick-pack world because consumers, while having more choice, may not necessarily pay less for programming. “Since there is no price regulation and BDUs [broadcast distribution undertakings] can continue to sell their current packages, we believe BDUs will have the flexibility to maintain their existing economics,” Fan argued.
And Canaccord Genuity analyst Dvai Ghose insisted that, while the CRTC’s proposed $25-per-month skinny basic package was well below pricing for current entry-level basic cable packages, likely to reduce a carrier’s average revenue per user (ARPU), today’s industry is all about broadband.
“While we suspect many customers may elect to purchase additional channels beyond skinny basic in sought-after categories such as sports, in a worst-case scenario TV ARPU could decline by as much as $9-$21 for some customers,” Ghose stated in his investor note.
“However … if a customer were to supplement their basic package with an OTT [over-the-top] solution such as Netflix, this could lead to a revenue shift toward higher-margin Internet ARPU and away from lower-margin TV revenue,” he added.
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