Predictions

by Karl Bode


Filed Under:
cable, cord cutting, price hikes



What Cord Cutting? Cable Sector Hiked TV Prices 40% In Last Five Years

from the blind-deaf-and-dumb dept

We've noted time and time again that the cable and broadcast industry could compete with cord cutting by lowering prices, it just chooses not to. Even with last quarter seeing the biggest quarterly defection by paying subscribers ever recorded, time and time again you'll see sector sycophants proclaim that cord cutting either doesn't exist, or has been violently over-hyped and isn't worth taking seriously. In fact, most sector executives still believe that the shift away from traditional cable will magically end once Millennials start procreating (protip: it won't).

As such, they've continued to raise cable TV rates at an absurd rate in the belief that they can keep milking the legacy cable TV cash cow in perpetuity. And while broadcasters certainly take the lion's share of the blame for raising the cost of programming, you'd be hard pressed to find a cable TV provider that isn't making things worse by also saddling consumers with misleading fees for nothing and soaring cable box, modem, and other hardware rental costs.

The end result is users paying 40% more for cable TV than they did just five years ago. In fact the average cable bill is now $103.10 per month, an increase of 4% in the past year. And while the cable sector is quick to proclaim that this just reflects the "increased value" of cable TV, the reality is that most cable ops are trimming back overall channels to try and offset the bloated, soaring cost of sports programming.

While it remains true that the vast majority still subscribe to cable TV and cord cutting is a slow trickling phenomenon, last quarter saw 800,000 pay TV customers leave for cheaper pastures. And things are actually a little worse than that when you remember that cable TV subscriber totals aren't scaling with a rebounded housing market. In other words, millions of people are not reconnecting cable after they move:
"About 82% of households that use a TV currently subscribe to a pay-TV service. This is down from where it was five years ago, and similar to the penetration level eleven years ago," said Bruce Leichtman, president and principal analyst for Leichtman Research Group, Inc. "The rates of those exiting the category, or intending to leave, are actually similar to recent years. The decline in penetration is also due to a lack of those who are coming into the category, and the industry not keeping pace with movers and related rental housing growth."
A different study this week predicted that TV providers could lose nearly $1 billion in revenue as another 800,000 customers cut the cord over the next 12 months:
The study, which is based on an online survey of 1,119 U.S. customers, estimates that pay-TV providers lose about $1,248 per cord-cutter annually. That’s because the average cord-cutter saves $104 a month—about 56% of their bill--from dropping cable TV...“The consumer is discovering they don’t need the mean, evil cable company to get the content that they want, and they can get it for a better deal,” said Steve Beck, managing partner at cg42. A $1 billion loss of revenue is small for the entire pay TV industry, but it is a warning sign.
And it's a warning sign that's going to continue to be ignored by the cable and broadcasting industry. It's abundantly clear that beyond lip service to "innovation," the cable sector doesn't plan to do the one thing that would stop cord cutting dead in its tracks: lower rates. Instead, knowing full well they hold a monopoly over the broadband last mile, they've decided to raise rates on broadband via usage caps and overage fees. Should customers continue to cut the cord, skyrocketing broadband usage surcharges will simply let them grab their expected pound of flesh in a different way.

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  • icon
    JBDragon (profile), 29 Sep 2016 @ 6:10am

    I cut the cord about 6 years ago after paying for cable for 18 years. I couldn't justify it anymore. Currently I have a basic bundle which includes HBO because that was cheaper then Internet ONLY. I got a cheap TV Cable box I haven't hooked up because I'm still using my antenna. I get my HBO using the HBO Now App, though Comcast doesn't allow it to work on TIVO so I have to use it on the ROKU or AppleTV. Pretty lame of them. So I pay about $66 a month.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 29 Sep 2016 @ 6:21am

    Not just cable providers.

    Out here in Phoenix our electric utility provider has increased the rates to the point that rooftop solar is economically viable. We have companies leasing and selling panel systems now. When faced with lower revenues the utility lobbied for a connection fee using the logic that solar customers unfairly benefit when there is no sun. The language of the change spurred a new work around. We are seeing battery packs that charge at night during non-peak times to power the house during the day.

    reply to this | link to this | view in chronology ]

  • icon
    That Anonymous Coward (profile), 29 Sep 2016 @ 6:24am

    We'll just make up the losses by charging more for our internet offerings with caps. See how you like Netflix when you have to pay us an extra $150 in overage charges because you thought watching a movie in HD would be good.

    reply to this | link to this | view in chronology ]

  • icon
    ed271 (profile), 29 Sep 2016 @ 6:26am

    My ISP finally figured out how to sell me tv. I get a basic package for $35, and it comes with a $37 discount on my internet. So the tv box sits in my basement saving me $2 per month, probably the most productive thing a tv box has ever done.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 29 Sep 2016 @ 6:37am

      Re:

      If it is one of the big ISP's I would not be surprised to see within six months suddenly that $37 discount become $60 in extra fees because they conveniently forgot to tell you about it being a limited time deal.

      That is what they tried to pull on me. A double speed increase, but when i pressed for details they finally relented and let me know that their amazing price was only for three months and required one of their most expensive TV packages. If I signed on it would have been a high sticker shock.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 29 Sep 2016 @ 6:28am

    "A different study this week predicted that TV providers could lose nearly $1 billion in revenue"

    It annoys me when profits not gained are described loses.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 29 Sep 2016 @ 6:33am

    They are darn desperate for sure. I just got a call the other day from Comcast offering me to double my internet speed for only an introductory price of $30 more than I am paying now per month! Of course no mention of the final price and it also required a full cable subscription with a full movie package subscription. So yah...no way would I pay that.

    reply to this | link to this | view in chronology ]

  • icon
    Ninja (profile), 29 Sep 2016 @ 6:35am

    A $1 billion loss of revenue is small for the entire pay TV industry

    It's like that small bleeding that won't stop and slowly increases everyday. Once they realize it's bad it will be in full blown hemorrhaging and too late to fix. Which is why broadband is in serious risk since the same content producers/deliverers are the same company. If the Govt doesn't act the future will be dark to the internet users in the US.

    It's about time ISPs are forbidden from offering anything other than connectivity.

    reply to this | link to this | view in chronology ]

    • identicon
      DigDuggery, 29 Sep 2016 @ 6:39am

      Re:

      Force breakups between content providers and content delivery.
      Make all infrastructure common-carrier.
      Disallow "limits" on any of the common-carrier infrastructure, including cell towers.
      Mandate "minimum" data rate plans, rather than "up-to" data rate plans.
      Advertised rate is the absolute minimum you will get, 60 * 60 * 24 x 7 * 365.25 a year. Prorate when outages occur.
      No overages allowed, ever.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 29 Sep 2016 @ 6:40am

      Re:

      I am waiting for the day when Comcast finally finds a loophole that they can ram their content through.
      Like HD NBC channels is only available with a comcast cable subscription, all streaming and non-network NBC is forced to 240i. Or something as despicable.

      reply to this | link to this | view in chronology ]

  • icon
    TheResidentSkeptic (profile), 29 Sep 2016 @ 6:37am

    And the Death Spiral Begins...

    The Strategy of raising rates to meet wall street revenue growth targets will rapidly reach a tipping point (read that: sheer cliff) - using the formula of

    (target revenue / # subscribers) = monthly bill

    will reach a point where no remaining subscribers can afford it. That will be fun to watch.

    reply to this | link to this | view in chronology ]

    • icon
      DannyB (profile), 29 Sep 2016 @ 7:28am

      Re: And the Death Spiral Begins...

      But doesn't division by zero result in Infinity! Executive bonuses all around!

      Oh, wait. You're saying it's undefined? Well, then executives can still define it as success!

      reply to this | link to this | view in chronology ]

      • icon
        Kal Zekdor (profile), 29 Sep 2016 @ 2:12pm

        Re: Re: And the Death Spiral Begins...

        No, you're fairly correct on the first one. As the number of subscribers approaches zero, the monthly bill required to maintain revenue approaches infinity.

        As the cost of service increases, they lose subscribers, which increases the cost of service, which loses subscribers, et cetera ad nauseam. It's a self-reinforcing cycle, and if they don't do something about it right now (such as accepting lower revenue rates, or improving customer experience) they have no chance of avoiding the forthcoming point of criticality which starts the runaway chain-reaction.

        reply to this | link to this | view in chronology ]

  • icon
    rdking647 (profile), 29 Sep 2016 @ 6:55am

    i cut the cord in may. I had cable internet and phone thru time warner. every couple of months my bill would suddenly jump and i would have to spend 45 minutes on the phone with them until they agrred to lower my bill back to where it was. then 2 months later it would jump again. finally i said im done with this crap. dropped tv and phone and lowered my bill from $200 to $95 (for 200 mb internet)

    i used HBO Go for game of thrones and cancelled it 15 minutes after the season ended. I use netflix and amazon prime for everything else along with an HD antenna..

    the cable companies can go to hell

    reply to this | link to this | view in chronology ]

  • identicon
    AnonCow, 29 Sep 2016 @ 6:59am

    Textbook

    How does a monopoly respond to customer defections? Raise prices.

    How does a monopoly respond to new technology? Legislate against it.

    The only reason for a monopoly is if a service would not be provided by the market due to the high cost. That is not the case today, so why does cable television/broadband remain a monopoly in most US markets?

    reply to this | link to this | view in chronology ]

  • identicon
    AnonCow, 29 Sep 2016 @ 7:05am

    Better than cord cutting!

    I have a friend that took cord cutting one better. He is able to buy cable and premium service log-ins on the dark web, so he not only doesn't pay for cable television, he gets the content anyway! He's the modern day version of the guy climbing the pole and running his own co-ax.

    reply to this | link to this | view in chronology ]

  • icon
    rdking647 (profile), 29 Sep 2016 @ 8:31am

    they agreed to keep my rate the same for a year. next month they jacked it back up again and thats when i said goodbye

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 29 Sep 2016 @ 8:56am

      Re:

      Ahh another victim of the entire agreement clause. A lovely clause built into many large company contracts that basically says the sales rep can lie to your face because what you sign is the actual agreement. So unless that one year price fix was specifically written in the contract you signed it meant nothing. Not sure if your agreement has it but chances are it does.

      My favorite encounter with this was with an alarm company (or was it pest control? I forget). They promised a similar price fix and no ETF if I broke the contract within a month (we were in a cellular dead zone and they could not guarantee their alarm system would actually work until it was installed and tested). So I told him to write it on the contract. He said he could not, but he had a separate official looking paper he wrote on. I told him to reference that in the contract and sign the separate document. He would not he said it was just as binding, even if he didn't sign it because that is what he promised. I showed him the entire agreement clause. He shrugged and left. I went with a different company.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 29 Sep 2016 @ 10:01am

    double my internet speed

    tiny, little caveat:
    double means what they want it to mean
    internet means what they want it to mean
    speed means what they want it to mean
    and, of course, my means what they want it to mean

    other than that, it means what you think it does.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 29 Sep 2016 @ 10:40am

    Not just cost savings

    I suppose that you'd call me a Millennial... and guess what, I have kids. My kids went for several years before they were somewhere that had 'Cable TV'. They we're thrilled for about 7 whole minutes... they the yelling started.
    Neither of them knew what a commercial was, so they yelled at each other for changing the channel... then my wife and I tried our best to explain what was going on, but they kids just wouldn't accept it (they even, thought we we're trying to trick them into watching something else)
    Then they kids realized that they couldn't pause whatever they were watching ("Daaaaaaaad! the remote is broken!").
    But the part they hated the most was not being able to start whatever show they wanted when they wanted. They didn't want to watch any of the 'On-Demand' shows offered by Xfinity, they wanted something else...

    So, even if Cable TV in my area cost half of what I was paying for Netflix + Hulu(and Add-ons) and Crunchroll, we wouldn't want it.

    Sorry Cable, even if you take cost out of the equation, you still don't compete.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 29 Sep 2016 @ 1:13pm

    My kids are 14 and 16. They don't watch cable TV. Ever.

    Everything they watch is youtube or netflix.

    reply to this | link to this | view in chronology ]

  • icon
    Whatever (profile), 29 Sep 2016 @ 4:10pm

    MIssed problem

    Good story, except you failed to do the obvious, which is look into WHY the prices have gone up. They aren't raising them randomly.

    The price increases represent almost exclusively increased fees paid to the various services and channels they provide. Huge increases in costs for everything from CNN to over the air channels is a huge issue.

    it's pretty easy to figure out: The cable companies haven't grown their bottom lines by 40% (or more, as in theory any increase for a profitable company would go directly to the bottom line). Rather, they end up paying out the increases.

    Cable companies are actually a bit of the victim in this situation - and they pass that pain on to consumers. It's not the cable companies milking the golden cow to death, it's the content providers making it too expensive for people to buy the content.

    reply to this | link to this | view in chronology ]

  • icon
    ysth (profile), 29 Sep 2016 @ 10:32pm

    even Andrew Orlowski thinks Cable is dying

    The Reg has a new article by him "FCC death vote looms for the Golden Age of American TV: The inside story of Google's plan to pwn the TV biz".

    Wow, do I wish that site offered an Orlowski filter.

    reply to this | link to this | view in chronology ]


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