If you're reading this blog you've probably seen your cable or satellite bill go sky high for the past several years. You're not imagining things, it's true. The price increase of pay-tv has outpaced inflation for several years. The FCC issued a report earlier this year showing that the price of cable TV has increased an average of 6.1% per year since 1995. Compare that to the consumer price index (a measure of spending for goods and services most of us buy in a given year) which only increased 1.6% per year since 1995.[1]

 

Why are cable and satellite companies increasing prices so much? The five main reasons are: they are a monopoly, they buy their programming from other monopolies, sports, bundled pricing, and equipment/fees. Let us break it down for you in sections, so hopefully you'll understand enough at the end to realize what you likely already know, you're getting screwed.

 

Cable and satellite companies are monopolies.

 

How many options do you have for Pay-TV providers? There's likely a cable company, like Comcast or Cox, that serves your home, the 2 satellite providers, DirectTV and Dish, and if you're lucky, your phone company, with Verizon's Fios or AT&T U-verse. With so few choices for Pay-TV in the marketplace it’s easy to see how the Cable and Satellite providers can be viewed as monopolies.  They further this impression by requiring you to buy and install new equipment, rearranging channels so you have to relearn a numbering system, the hassle of switching services, and dealing with any unforeseen startup problems. And that's only if you have the choice. If you live in a multi-family building or around a lot of tall structures or trees, you may be forced to use one cable company or the other. So for many of us, the cable company really is a monopoly because its such a hassle to switch, if we can switch at all.

         

Furthermore, Cable and Satellite companies are not regulated monopolies like your electric company, which has to get government approval before it can raise its rates. Your cable company can raise their rate whenever they feel like with or without notice, as I'm sure has happened a few times to you.

 

Cable Companies buy their programming from monopolies.

 

Nearly all of us have asked why we have to buy hundreds of channels in "tiers" or "packages" in order to get the few channels we want. Nowadays, it's because the programmers cable companies deal with force them to do business this way. Each channel cable companies buy has a "per subscriber" fee, where the cable company is charged by how many of their subscribers have access to that channel in their homes, regardless of whether or not they watch it. Naturally, this means that each channel wants to be available to as many homes as possible, so they can get the most money. This leads to higher bills for you because the cable company cannot dilute their costs with more subscribers. These channels are owned by large conglomerates, who force cable companies to put all their channels on certain "tiers" or "bundles" in order for cable companies to purchase the programming at all.

For example: Say you really like watching shows on FX. FX is owned by Fox, which also owns Fox Sports, Fox News, FX2, and likely your local Fox Network affiliate as well. For Comcast to buy FX from Fox, it forces Comcast to purchase all these other channels and make them available in the same homes as FX, regardless as to whether or not the consumer wants them, thereby increasing the "per subscriber" revenues for all of its channels. Comcast can (and has) chosen not to purchase channel bundles from programmers, but the loss of a channel can produce negative consumer reaction beyond what even a cable company can withstand, and the result is a price increase and channels you don't want.  

         

In order to give you the channels you want the cable company is forced to give you channels you don't want by other monopolies.

 

Sports:

Of the programming monopolies that I talked about above, sports takes a special place. Nearly 50% of your cable bill is because of sports according to Bernstein Research.[2]  Sports are extremely valuable for programmers for 3 reasons.

  • People generally do not DVR sports contests (only 3%) and cannot fast forward thorough commercials, guaranteeing sports advertisers an audience.

  • Sports programming is not substitutable. If someone can’t watch the Gophers, generally they do not watch the Badgers instead.

  • It captures prime audiences of 18-49 year old males, who are choice consumers for advertisers, and have shown a willingness to pay top dollar in order to consume sports content. [3]

 

It’s the 3rd point in particular that makes things so difficult. ESPN and regional sports networks such as Fox Sports North show big time sporting events that are very important to certain people. These networks again are owned by conglomerates, so when the conglomerates come to negotiate with the cable companies, they place a high price on sports networks, and force the cable companies to buy all the other channels as part of the deal. If the cable or satellite companies refuse and ESPN goes off the air, those rabid 18-49 year olds will (and have) quickly switched providers or, in one very early case with ESPN involving NASCAR fans, threaten to cut down telephone polls with chain saws. [4]

         

This makes it very difficult for cable companies to keep prices low, because they contractually have to sell you channels you do not want through “packages” or “tiers.” Programmers specify which “tier” their channel will be on so that if they’re on a tier with more subscribers, they get more revenue, regardless of how many people actually watch the channel. ESPN and most sports channels refuse to be placed on a tier with fewer subscribers because it gives them less money, and the channels have such valuable content (to certain people) that they can get away with it. When you subscribe to cable or satellite, you pay nearly 50% of your bill to sports, and most of the rest is in other channels you are forced to buy along with the sports.

 

Bundle Pricing:

Remember that awesome “introductory” price the cable company signed you up to a long time ago? It included all these cool extra features like a Multi-room DVR, super fast internet, all kinds of premium channels, on-demand content, and a landline phone that you likely never use. What happened when that “introductory” price was over with? Did anything change? Did you get rid of any services or channels? Were you able to renegotiate the same price again? To many of those questions, I’m guessing not. Cable companies sell you bundles as if you’re getting a deal. Maybe you are initially, but by the time that introductory price runs out, you generally receive no bundle discounts, and are being sold very high margin services such as a landline phone, fancy dvrs, and internet at speeds you’ll likely not need.

         

Cable companies count on a combination of consumer malaise and confusion to keep you hooked on “bundles,” not to mention terrible experiences at the “retention department” when you go to change or cancel. Trying to read your bill is another adventure entirely. It always seems that new subscribers get a better deal than loyal customers, even those willing to negotiate with those hated customer service folks at the cable company.

         

Whether or not it’s by design, the strategy with most cable companies these days is to frustrate the customer enough that they are willing to go with a higher bill rather than go through the pain of getting the right services. Bundle pricing is a way to sell the most services, whether or not they are needed, to a customer.

 

Equipment leasing and “fees”

Ever notice that your bill does not exactly match the price you saw in the commercial that caused you to sign up in the first place? In fine print, there is that little catch that says “Taxes, Equipment and fees extra” and boy do those seem to be a lot. Fees to lease a cable box, fees to lease a cable modem, fees to lease a dvr, “Broadcast TV” fees, sports fees, all these little things that add up quick. It’s a very classic bait and switch, and moneymaker, for the cable companies. The cost of the equipment you lease is often less then what you pay in a year’s worth of fees. Those other fees are simply ways of increasing the price you pay for programming without increasing the advertised prices. It’s a sneaky way to get more money from customers, and unfortunately, it works.

        

If there’s one truth about the pay TV industry for nearly all of its 30+ years of existence, it’s that the customer is usually last on the list of priorities. Whether it is terrible reception, bad equipment, ridiculous prices, or frustrating customer service, Cable TV has always been difficult to deal with. Here at Cable Alternatives, we have the knowledge and the training to help get you exactly what you need, with a great customer experience. Give us a call, an email, a tweet, or message us on Facebook. We’ll help you feel good about watching TV at the right price.

 

 

[1]  http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0516/DA-14-672A1.pdf

 

[2] https://gigaom.com/2012/04/06/by-the-numbers-the-spiraling-cost-of-sports-programming/

 

[3] http://variety.com/2013/tv/news/sports-fans-to-spend-more-money-to-watch-favorite-teams-1200577215/

 

[4] https://books.google.com/books?id=SkYN5eMreOUC&pg=PT95&lpg=PT95&dq=These+guys+have+all+the+fun+telephone+poles&source=bl&ots=60HdxARZfc&sig=3mCkoNFmXFPCPwbw7G64KXF1CY8&hl=en&sa=X&ei=GiCTVOeAH6OxsASK04DoDg&ved=0CDMQ6AEwAw#v=onepage&q=These%20guys%20have%20all%20the%20fun%20telephone%20poles&f=false