News

A La Carte Lives, Up North

6/13/2004 8:00 PM Eastern

Washington— U.S. cable networks don’t like to market the fact that many of their branded services are sold a la carte — not here in the U.S., but across the border in Canada.

In the U.S. market, ad-supported cable networks insist on placement within large tiers, viewing that model as the most conducive to building audience and developing the vital dual revenue stream.

But for many U.S. cable networks doing business up north, a change in latitude has produced a change in attitude toward a la carte.

The lack of a la carte in the U.S. is coming under close scrutiny in Congress. Some lawmakers view the mandatory purchase of large packages as a cause of rising rates, and for the melding of family friendly programming with raunch.

But in Canada, some of the most outspoken critics of a la carte in the U.S. permit — implicitly or explicitly — Rogers Communications Inc. to retail their channels a la carte (although few Rogers customers opt for a la carte purchases).

WHAT ROGERS DOES

Rogers is Canada’s largest cable company with 2.3 million subscribers, a quarter of whom take digital. The company offers an analog basic tier — which, by law, every subscriber must buy — along with optional fat digital tiers.

But the MSO also sells, at reasonable prices, dozens of cable networks a la carte, as well as small tiers arranged by theme.

The Walt Disney Co., which has been fending off a la carte threats to ESPN in Congress, owns 30% of ESPN Classic Canada, which Rogers makes available for $2.49 (Canadian currency, or roughly $1.82 U.S.) per month to its digital customers.

Ed Durso, ESPN executive vice president of administration, said Canadian regulation of analog basic has effectively pushed the channel into a la carte and mini-tiers. (The Canadian government regulates the components of basic but not its price, according to Rogers.) “The regulatory system in Canada places it in a digital environment where a la carte or digital tiers are the only available distribution mode for the service,” Durso said.

Durso said a la carte was a bad business model that threatened the viability of many networks offered that way to Canadian cable customers.

Rogers also provides seven channels of Discovery Communications Inc. Discovery is a minority owner of five: Civilization; Health; Kids; Animal Planet; and Discovery Channel. All except Discovery Channel are available a la carte.

DCI owns 100% of The Learning Channel and Wings. TLC is carried on an expanded analog-basic tier, which consumers are not required to buy, and Wings is offered a la carte by Rogers.Discovery spokesman David Leavy said Canada’s a la carte can’t be copied successfully in the U.S.

“The Canadian model is like comparing apples to oranges,” he said. “Imposing an a la carte system in the U.S. now would destroy the quality, family friendly voices consumers demand and would be a disaster for independent programmers.”

In a March letter to Sen. John McCain (R-Ariz.), Discovery CEO Judith McHale argued that a la carte in the U.S. would harm cable consumers. She said that if the top 30 U.S. cable networks (by revenue) were sold a la carte, a consumer would have to pay $187.50 a month to maintain the same level of service.

Rogers also offers A&E Television Networks’ The Biography Channel a la carte and in a mini-tier.

Last month, A&E co-authored a letter to dozens of House members to press home the point that a la carte sale of cable networks would devastate niche networks and perhaps force established players to close up shop. “While the argument has been made the concept of a la carte programming means more consumer choice, when scrutinized, the argument is not a valid one,” A&E told the lawmakers.

A&E DIDN’T KNOW

A&E Television Networks CEO Nickolas Davatzes said his company owns 30% of Canada’s The Biography Channel. At the time the investment was made, A&E was unaware that Rogers planned to offer the channel a la carte.

“When we made the investment, we were not told … that Rogers was going to offer it on an a la carte basis in addition to a tier,” Davatzes said. “That was not part of the business proposal at the time. If it was, we wouldn’t have done the deal.”

Also available a la carte on Rogers are several Viacom Inc. brands, including MTV Canada, Black Entertainment Television and TV Land. A Viacom spokeswoman did not respond to questions about that company’s financial interest in those channels.

The situation in Canada has been overlooked by many in Congress.

Key members of the House Energy and Commerce Committee, for example, recently asked the Federal Communications Commission to study a la carte from several angles in a letter that contained nearly three dozen specific questions. But none of them mentioned Canada.

McCain, though, is very interested in Canada.

On May 19, McCain sent a letter to FCC Chairman Powell requesting that the agency examine why Canadian cable systems offer channels a la carte but U.S. consumers do not have the same option.

“I urge the [FCC] to probe the options available to Canadian consumers and examine why such options are not available to American consumers,” McCain said.

In response to the House letter, which arrived at the FCC a day before McCain’s, the FCC last month issued a public notice filled with questions designed to round up the data for its report due Nov. 18.

The FCC did not specifically honor McCain’s request for a look at Canada.

MCCAIN LIKES IT

In his letter, McCain also asked the FCC to report on whether or not it currently has the legal authority to ensure that consumers have a la carte access to cable and satellite programming.

“I am writing to ask you to explore all available options within your authority to promote a la carte cable and satellite offerings as soon as possible where such offerings would benefit consumers,” McCain said.

McCain, chairman of the Senate Commerce Committee, is an a la carte booster who pulled an amendment in March that would have required cable and satellite companies to offer all their channels a la carte within nine months, although the distributors could continue to provide tiers as an option.

McCain closed the letter to Powell by bemoaning the fact that cable companies won’t even experiment with a la carte in the U.S.

“That is why I urge you to use any existing authority you have to promote, or to create incentives to promote, an a la carte pricing option, in conjunction with whatever tiers cable and satellite companies already offer,” McCain said.

The FCC report on a la carte could shape the debate in the U.S. for years to come, according to one media analyst.

“Probably the core question is: What is likely to happen to most subscribers rates in an a la carte world? That’s the question that gets the most debate,” said Paul Gallant, a former FCC official now a media analyst with Schwab Washington Research Group. “The FCC is viewed as an independent arbitrator. I think their views will carry significant weight with Congress.”

McCain favors forcing cable companies to retail every channel a la carte, not just digital channels like in Canada. From his perspective, if the tier provides the best value, consumers will buy it; if it doesn’t, subscribers will flock to a la carte.

But McCain’s model is not exactly how the system works in Canada with Rogers. The company’s analog basic package includes about 30 channels and sells for about $24 a month. (All prices are in Canadian dollars.) But none of those channels is sold a la carte.

Only digital subscribers have a la carte options. Digital subs need a box (which leases for $8.95 a month) before they can buy their first a la carte channel for $2.49 a month.

Rogers began offering a la carte in 1999 with the rollout of digital. “We thought it was a good marketing opportunity to offer that kind of choice to our customers,” Rogers spokeswoman Taanta Gupta said.

Rogers digital subscribers may assemble a package of a la carte channels or opt for prepackaged mini-tiers organized by genre, such as movies, sports, family and lifestyle.

The tiers include five to seven channels and range in price between $4.99 and $7.99 a month. Rogers also offer two VIP digital packages that cost $69.95 and $84.95 (the latter comes with movies) and include analog basic and the digital set-top.

The price-channel matrix gets more complicated, however, because Rogers also offers price incentives to VIP customers that also subscribe to high-speed Internet access service.

The bottom line for a Rogers customer that pays $24 for basic and $8.95 for a box is this: Instead of having to jump to the next available expanded digital tier priced at $69.95, the customer can take intermediate action by buying individual channels for $2.49 each or a mini-tier or two for either $4.99 or $7.99 each.

DOESN’T SELL WELL

The Canada situation points out more than just that U.S. cable brands are sold a la carte in a foreign market. It also shows something else: A la carte is not that popular in Canada.

Rogers’s Gupta said although a la carte is widely available, very few customers actually buy one or two channels a la carte – so few, in fact, that the company doesn’t even keep track of the number.

“Very few take between one in five channels, very few customers do that,” Gupta said. “People like the fact they have an option but the fact is that they haven’t exercised that option a great deal.”

Look North to A La Carte
Canadian cable operator Rogers allows digital customers to make a la carte selections from a lineup of dozens of channels, including such tiered American services as Animal Planet, BET, GSN and MTV.
All prices in Canadian dollars.
Source: Rogers Cable
Rogers’s cheapest route to a la carte:
• Subscribers must buy a 30-channel basic tier: $24.00
• Subscribers must lease a digital box: $8.95
• Cost of first a la carte channel: $2.49

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