The idea of a la carte cable packages -- the ability to pick and pay for the channels you want and only those channels -- has long been something service providers have fought against.
That makes sense, because the current model lets pay-television providers such as Comcast (NASDAQ:CMCSA), Time Warner Cable (UNKNOWN:TWC.DL), and Charter Communication (NASDAQ:CHTR) pad customers' bills with dozens of stations few people watch. The cable companies pay next to nothing for these channels and mark them up, forcing people to pay for content they probably don't want.
This has been an excellent system for both big cable and the companies that own content. For example, Walt Disney (NYSE:DIS) owns ESPN and The Disney Channel -- two very popular stations -- and it can leverage those to get cable companies to take the less-liked stations in their lineups. Cable companies fight this demand a little bit, but they don't really mind because if they pay a few cents for ESPN Classic, they can make that money back by marking it up in whatever packages they offer.
Comcast, TWC, Charter, Disney, and more have profited from this arrangement, but it has its obvious downsides for consumers. That has led to an increased call for a la carte pricing, and some companies are now offering slim bundles for lower prices to keep consumers from cutting the cord. That's not the same as just picking and paying for what you want, but it's a start.
And while it once seemed impossible, a la carte in some fashion now seems inevitable, and a model for how it might work is coming to Canada.
What's happening up north?
The Canadian Radio-Television and Telecommunications Commission (CRTC) has ordered cable carriers in the country to have more choice in what Canadian and American cable channels they receive. Under rules that must be implemented by this coming December, the regulatory board is forcing cable companies in the country to stop forcing expensive packages of channels on consumers.
The deal will usher in a sort of skinny bundle plus a la carte system. "The CRTC will also compel carriers to offer a skinny basic cable package capped at $25 a month that includes affiliates of U.S. networks, including ABC, CBS, Fox, NBC, and PBS," reported The Hollywood Reporter.
What's the risk?
While being able to pick which channels you want sounds like a good idea, people could end up paying more for less. A popular channel, like ESPN or The Disney Channel has a significant cost, with the sports network alone commanding a whopping $6 per subscriber. If that channel is not a forced purchase for everyone, then it could become more expensive for the people who actually want it.
Of course, that becomes a game of chicken between the content owner and the consumer. The more a channel costs, the less people will want it, which could force prices even higher. At some point, people either balk or drop other content in favor of their absolute favorites.
The other risk is that the top-tier channels will enter the market as standalone over-the-top streaming services. This situation could allow people to still get ESPN or even the entire Disney package while cutting the cord, which is what CRTC is trying to prevent.
Will it work?
Cable companies understand that customers don't want to be forced to pay for tons of channels they don't want, even if they sometimes have an economic interest in making people do so. They also know that the content market would collapse without bundles. Many, if not most, stations on pay television wouldn't survive if viewers actually had to pick them. Letting those channels fail would hurt cable's leverage with subscribers, which comes in part from having something for everyone.
The Canadian model is interesting, but it's probably not a sign of what will happen in the United States. Instead, the leading American providers, since the government almost certainly won't force them, will offer skinny bundles where needed -- on college campuses and to cord-nevers or would-be cord cutters -- but it will fight to keep the current model.
Concessions will be made, and that means some channels will probably die, but ultimately consumers won't want to see dozens of choices go away. Canadians will be getting a lot more choice, while Americans should expect a little more flexibility in the coming years.
Comcast, Charter, Time Warner Cable, and content owners such as Disney will certainly be casting an eye northward to see how people react. What channels Canadians are willing to pay for will absolutely send a message to U.S. companies, and what happens in our neighbor to the north could have major repercussions for what happens here.
Daniel Kline has no position in any stocks mentioned. He likes having a lot of channels. The Motley Fool owns shares of and recommends Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.