The TV pricing drama

It’s no mystery, and it’s certainly not a comedy

Remember when watching TV meant having to choose between ABC, NBC and CBS (and sometimes the public television station, when it was clear enough)? As we walked across the room to switch channels on a TV set encased in a wood-grain cabinet, we could not imagine a world where hundreds of channels existed, catering to viewers interested in sports, movies, home decorating, cooking, science fiction, cartoons, politics and everything in between.

While we have gained tremendous choice in our television viewing options, we have also lost any pricing stability. In fact, the only thing predictable about programming rates is that they will continue to increase for the foreseeable future.bigstock-Row-of-widescreen-HD-displays--22657049

Why do TV programming prices keep climbing?

A portion of the fee you pay for your TV package each month covers the equipment and personnel costs associated with delivering you the service. But a majority of your bill goes to pay the providers of the programming you love to watch — and that you don’t watch. Because of the way these companies (from CNN and FOX News to Disney Channel and ESPN) structure their contracts, we must pay them according to the number of subscribers we have, not the number of people who actually watch each channel.

A 2013 article in the New York Times1 offered ESPN as a good example. Only 1.36 million of the sports network’s 100 million subscribers, the article states, were tuned in during prime time hours April-June of 2013. Nonetheless, all 100 million paid ESPN’s programming fees those months as part of their monthly bill from their service provider.

ESPN is an easy target for a discussion on why TV subscription costs keep climbing. According to a recent Planet Money article on npr.org2, ESPN is the most expensive channel, charging service providers $5.54 per month per subscriber. That same article lists TNT at $1.33 and Disney Channel at $1.15. Rounding out the bottom of the list as the least expensive channels were Hallmark Channel at 6 cents and CMT Pure Country at a nickel per subscriber.*

But ESPN is not the only channel that continues to raise its rates. In fact, some of the biggest increases have come from the broadcasters of “local stations,” who traditionally allowed service providers to carry their signal at no charge. Now, each time service providers have to negotiate the retransmission consent agreements with these networks, their monthly price per subscriber goes up.

Is there a solution on the horizon?

Currently, providers like us are required to buy a bundle of several channels (and often place them in certain packages) in order to get the two or three most popular channels a programmer offers. Congress has considered legislation that would change such requirements, making it possible for subscribers to have options for paying only for those channels they want to watch.

Judging by past attempts at such legislation, it appears to be a longshot that mandated unbundling will happen any time soon. It also remains unclear if picking your channels a la carte would have a significant impact on your bill anyway. A study released last year by Needham Insights suggested that the fees per member charged by ESPN, for example, would soar to $30 under such a structure, based on the assumption that their number of subscribers would drop from 100 million to  approximately 20 million die-hard sports fans.

This could also spell an end for the smaller specialty channels that would not attract a large enough audience to generate the ad sales to support them.

What is our role?

As your telecommunications company, we are committed to providing you with the channel selections you want while doing all we can to maintain package prices. This will not be easy, and you will continue to see price increases in the future as the cost we pay for these channels keeps going up.

However, we want you to know that our eyes are on the bigger picture. Whatever happens in the future regarding how you buy and watch your favorite channels, we know that the most important part of that equation is the network for delivering the signal. Whether it’s traditional TV, media websites or “over the top” services like Netflix and Hulu, you must have a robust, reliable network to enjoy these services. And we are committed to providing the broadband connectivity to deliver all you demand — in whatever form that might take — for many years to come.

 

(1) “To Protect Its Empire, ESPN Stays on Offense,” by Richard Sandomir, James Andrew Miller and Steve Eder – New York Times, Aug. 26, 2013

(2) “The Most (And Least) Expensive Basic Cable Channels, In 1 Graph,” by Quoctrung Bui – Plant Money, NPR.org, Sept. 27, 2013

*These estimates are based on a study by SNL Kagan of fees paid by the large, nationwide providers, and do not reflect the exact cost we pay for these channels.