It’s that time of the year – playoff fever has hit. Bars are full of sports fans drinking beer, eating wings and yelling at the TV. The anticipation is high, while fans wait to see if their beloved team will make it to the next round. Bar owners are also feeling a great deal of nervousness, but not for the same reason. Last month, Bell and Rogers sent out communication that they will be removing their sports networks – TSN (owned by Bell) and Sportsnet (owned by Rogers) from their existing packages and offering them as add-ons. Below is what we know so far:
- Changes will only impact bars, restaurants and hotels with liquor licenses
- Current bundles (starting at $67/month) will no longer include TSN and SN
- Pricing for TSN and SN will vary based on the establishment’s seating capacity and ability to negotiate (ranging from $135 to $675 per month)
What drove Rogers and Bell to restructure their packages abruptly?
Market Decline
A recent survey showed that, in Canada, one in 50 TV subscribers ditched their service for streaming options or over-the-air TV. CRTC verified these findings by reporting a 2% decrease in subscriptions in 2016.
Fewer Customers, Price Increases
U.S. cable package giants have been focused on this for a few years seeing success in 2015 when the average monthly bill went to $66.08 from $65.25 (+1.27%).
Precedent in the Sports Market
Residential packages already offer Sportsnet and TSN as add-on services.
They recognized that money was left on the table by providing TSN and Sportsnet indiscriminately to all liquor licensed establishments. To optimize revenue, two principles are applied – value-based pricing and price fences. When applied in conjunction, customers would automatically be sorted into product-price combinations that maximize their willingness to pay. Hence, the decision to remove sports channels from the base packages and offer them as an add-on where the price is based on customer size.
When Customer Needs Aren’t Considered
With five Canadian NHL teams plus the Raptors making it to the playoffs, a reasonable price increase would have met little resistance. But the execution by Rogers and Bell was so flawed; it almost seems purposeful and arrogant in its contempt of the customer needs.
Exorbitant Price Increase
Common sense would indicate that offering add-on pricing for TSN and Sportsnet at 2 to 10 times the original cost of the base package would not be well received. Even if value-based pricing indicates that the two networks are worth $675 to a large venue, to implement the increase in one shot would undoubtedly cause sticker shock.
Strong-Arming Customers
In a market with perfect competition, customers who do not agree with the price increase would switch to other providers. However, third party providers have already stated that the new prices are set by the Rogers and Bell cable packages, and can not be affected by them. In other words, to buy or not to buy that is the only question.
Appearance of Collusion
Bell and Rogers own competing sports networks and are competing cable providers, the coincidence of them simultaneously releasing changes is not lost on the public. An example of how similar the prices are between the competitors can be seen to the right.
The Element of Surprise
Rogers and Bell had the ability to consult with partners such as Restaurants Canada to find common ground and build goodwill with their customers while realizing reasonable pricing. Instead, they kept them in the dark; in response, Restaurants Canada has reached out to CRTC and Competition Bureau to intervene.
Highlight Oligopoly and Invite Regulation
Recent public outcry has set the historically dormant CRTC on the warpath implementing regulations requiring “skinny” bundles be offered for less than $25, restricting license retailing wholesaler prices from suppliers and even suing Rogers, Bell and Telus for collusion.
With Rogers and Bell enjoying a privileged position as one of the big three, it is unnecessary to poke the bear, upset customers and burn alliances, which is what a 200-1000% price increase appears to have done.
U.S. Cable Packages
Despite having a greater variety of streaming options, Americans are cutting the cord at half the rate as Canadians. Experts have suggested that uncompetitive pricing is to blame. To illustrate this point, below are the plans available to restaurants and bars by the US cable giant Comcast (~22% market share).
Comcast cable packages, in particular, adhere to revenue management best practices. Five packages are available to segment customers across price and product. Sports channels are available at three price points, increasing as the offering becomes increasingly specialized.
As price increases, the incremental benefit gained is evident across three dimensions – # of channels available, quality of programming and alignment of content with the customer needs.
In contrast, Rogers and Bell rushed through their homework and took a hasty one-shot approach that enraged customers, partner associations and governing bodies. Given their history, they may very well get away with it. But in a world where cable TV is becoming increasingly irrelevant, they just made a case for regulation and alternative streaming services stronger. Talk about throwing fuel on the fire!
ABOUT THE AUTHOR Prerna Sharma is a Consultant at Revenue Management Labs, where they help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Prerna at psharma@revenueml.com
