High channel prices overshadow arrival of a la carte TV in Canada

Since the beginning of the month, Canadian pay-TV companies have been required to offer channels on an a la carte basis — that is, allowing customers to pay only for the channels they want, rather than having a costly bundle of more than a hundred channels shoved down their throats.

That probably sounds like a dream come true for American consumers, for whom the average monthly cable bill now runs $103, according to Leichtman Research Group. From 2011 to 2015, U.S. cable bills rose 39 percent, nearly eight times the rate of inflation.

Unfortunately, the Canadian experiment is demonstrating that pay-TV companies and programmers won't give up their old ways without a fight. Their response to government unbundling rules has been to price many a la carte channels at such high levels that it seldom makes sense to abandon fatter packages.

"We looked at the new plans," Calgary, Alta., resident Steve Finley told me. "It ended up being cheaper just to stay with our old bundle."

A spokeswoman for the Canadian Radio-television and Telecommunications Commission, the chief industry regulator, declined to address such consumer sentiments.

What's happening in Canada isn't necessarily unique to that country. Canadians get their pay TV the same we do — cable, satellite and broadband lines. American pay-TV companies are thus watching closely to see how the industry and consumers in the Great White North respond to the new rules.

Since March, all Canadian pay-TV companies have been required to offer basic programming packages of major networks and educational channels for no more than $19 a month (that's in U.S., not Canadian, dollars; I'm converting all figures here to American cash).

Service providers also have had to offer additional individual channels on an a la carte basis or so-called skinny bundles of no more than 10 channels. But that changed Dec. 1.

Now, Canadian pay-TV companies are required to give customers a choice: They have to offer a la carte channels and skinny bundles. Customers can go with whichever option suits them best.

George Burger, co-founder of pay-TV provider Vmedia, told me that if someone has very specific viewing habits, a la carte channels or skinny bundles can lower monthly bills. But if you desire greater viewing choices, costs can add up fast.

Vmedia's basic programming package of channels, including the top U.S. and Canadian networks, goes for about $13.50 a month. Some additional channels can be added for roughly $2.25 each. But desirable channels such as AMC and CNN can run more than $5 apiece.

"If you want three or less channels, you're fine," Burger said. "But once you get above that, it usually makes more sense to get a bundle."

He said only about 9 percent of Vmedia customers have opted for the company's $13.50 skinny package. "The vast majority are more comfortable with a bigger bundle."

That's not a coincidence. Canadian pay-TV companies seem to have adopted price points that make it easy to upsell customers to more-expensive packages once they express interest in the most-popular channels. The pitch: Why not pay an extra $10 or so and get all the channels you want plus a bunch more?

Every Canadian pay-TV programming executive I contacted said no one should be surprised that a la carte channels cost more than the bundled variety.

Aaron Lazarus (no relation), a spokesman for Rogers Communications, likened Canada's pay-TV scene to a burger joint.

"Some folks want it plain, many want the full combo meal, and lots of people want to pick the toppings or their favorite side," he said. "At the end of the day, people will put together the TV package that is right for them and their family and delivers the best value."

That assumes people will keep buying Happy Meals because they are cheaper and filling, if not exactly what they wanted.

I think Canadian pay-TV companies are seeing what they can get away with — and their U.S. counterparts are paying attention as skinny bundles such as Sling TV and DirecTV Now become more commonplace here.

Service providers in both countries are eager to keep profits as high as possible despite changing regulations and viewer expectations.

What will wipe the smugness from the pay-TV industry's face is the same trend that's humbled the newspaper business: online distribution.

People are growing increasingly comfortable accessing information and entertainment via internet connections, and they won't pay high prices for content that's similar to what other sites give away free. My teenage son doesn't watch TV. He watches YouTube.

David Lazarus is a Los Angeles Times columnist.