When a person moves into a new home and wants to set up cable or satellite TV service, often the first question is “who is my provider in this area?” rather than “what are my choices for service in this area?” Instead of comparing different providers’ strengths and weaknesses against one another, consumers’ often pursue service with the dominant or largest pay-TV provider in their neighborhood.
A lack of robust competition among pay-TV service operators is commonplace in many American communities, typically giving consumers limited choice between the incumbent cable operator or competing satellite TV provider, to the extent that service is accessible. Today, those that seek to cut the pay-TV cord may choose to use broadband over-the-top video services as an alternative, or install an antenna on their roof to receive free, over-the-air broadcast TV.
Over the years, pay-TV has increasingly become the “only game in town” when it comes to cable or satellite TV service. According to The Economist, three-fourths of Americans have no alternative service provider in their neighborhood. Not constrained by competition, a single cable company retains every incentive to raise prices arbitrarily.
A lack of viable competition for TV service inevitably breeds higher prices for customers, and pay-TV subscribers are thus held hostage to pay for a service that shows very little improvement from year to year.
Earlier this week, a Federal Communications Commission (FCC) report further validated the lack of competition in the U.S. video marketplace and pay-TV’s harmful effects on Americans. The average price for a basic cable TV service package continues to significantly outpace inflation as it rose by 6.5 percent over the 12 months ending in January 2013.
Additionally, equipment prices – such as the cost of set-top boxes – rose by 4.4 percent for basic cable service over the same one-year period. Even though many consumers typically keep their existing cable box during the course of a year, cable continues to increase “equipment rental fees” on monthly bills.
Despite these facts, the giant pay-TV companies look to blame broadcast programming fees for their outrageous rate hikes. This claim has been proven false by independent sources. For example, last month SNL Kagan noted that, “…retrans fees are just one factor in escalating programming costs – others were the additional expense of TV Everywhere and multiplatform agreements, increasing costs for cable network programming (especially sports), and additional channel launches.” The fact of the matter is that broadcast TV retransmission consent make up less than 10% of the total programming costs on pay-TV customers’ monthly bills.
Pay-TV’s price increases are difficult to justify, given the lack of improvement in service quality – reliability remains a trigger point for customer dissatisfaction. Yet, cable companies continue to curry favor with Wall Street, as the total combined revenues of the 11 biggest cable companies operating in the U.S. rose to approximately $21.6 billion in the first quarter of 2014, up 4.6% from a year ago.
These arbitrary price increases now gobble up more of consumers’ monthly budgets, and have a disproportionate impact on the American family budget during these difficult economic times. Big cable’s record profits are derived directly from the average consumer’s wallet, and with few viable alternatives, the majority of subscribers, who are locked in to service contracts, feel like they have little choice but to pay the hefty monthly pay-TV bills that continue to go up.
It is time for the pay-TV industry to stop the superfluous price increases, offer consumers more flexibility on their multi-year contracts, and give them assurances that their monthly bills won’t continue to increase at four times the rate of inflation, year after year.
It is time to end the vicious cycle.
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Robert C Kenny is the Director of Public Affairs for TVfreedom.org, a coalition of local broadcasters, community advocates, network TV affiliate associations, and other independent organizations; he formerly served as Press Secretary at the FCC.
