Cable Technology Feature Article
$200-per-Month Cable Bills in 2020?
By Gary Kim, Contributing Editor
Observers ten years ago would have had a hard time imagining that most U.S. consumers would actually pay for “television,” then conceived as a “no incremental cost” over the air broadcast service. Today, most viewers watch programming they pay for as part of video subscriptions.
The point is that one cannot always predict what consumers will pay for, much less “how much” they will pay. But NPD Group (News - Alert) thinks a test is coming.
NPD Group predicts that, at current rates of price inflation, the typical video subscription, standing at $86 as of 2011, will cost $123 in 2015 and $200 by 2020. Those are somewhat shocking numbers.
If video subscription prices were growing only as fast as the background rate of inflation or wage growth, that wouldn’t be a problem. But that is not happening.
Monthly video subscription rates have been growing at an average rate of six percent per year, with consumer income flat or negative, and background inflation rates at about two percent or less.
If all those background trends do not change, syncing with relatively similar growth rates for household income, background inflation for all other goods and video subscription prices, then we could see a customer crisis.
Economics suggests that, over time, as an iron-clad rule, people buy less products whose prices increase, and much less those whose prices rise significantly. That failing here is inconceivable, if video service prices increase out of proportion to incomes and background rates of inflation.
To be sure, we can’t predict what video ecosystem stakeholders will do to moderate the rate of increases, whether they can do so and what consumers will decide to do.
In a worst case scenario, where neither wage growth nor background rates of inflation match video service price inflation, the 16 percent of U.S. households without video services will grow. The only issue is how much the non-buying population would increase.
NPD does not seem to think the current business models are sustainable, though. “As pay-TV costs rise and consumers’ spending power stays flat, the traditional affiliate-fee business model for pay-TV companies appears to be unsustainable in the long term,” said Keith Nissen, research director for The NPD Group.
One suspects push-back from video distributors will at some point become intense, since it is not likely content owners and networks will voluntarily curtail their own costs. Sports programming will most likely continue to be the flashpoint.
Many observers would suggest the recent $2.1 billion purchase of the Los Angeles Dodgers makes sense only if television revenues grow handsomely. In other words, without dramatically
higher TV revenues, the owners of the Dodgers will have significantly overpaid for the asset.
But that is just one example of the “price creep” that continues to drive subscription video programming costs higher. It is hard to way when it will break, or whether ecosystem participants are nimble enough to shift in time to save the model.
Edited by Braden Becker