4. “Raising prices is part of our heritage.”
Consumers who stick with cable frequently face ballooning bills. The lack of competition means that cable companies have the upper hand when it comes to setting prices, says Michael Hodel, an analyst for Morningstar. Indeed, price hikes are getting steeper: The average cost for expanded basic cable service, the most popular level of cable service, grew by 5.4% in 2011 from the year before, according to the FCC. That compares with a 1.6% increase in the price of most other consumer goods as measured by the Consumer Price Index. And prices more than doubled from 1995 to 2011, according to the FCC. While the FCC regulates the rates of basic services and equipment in markets without a viable competitor, all other rates and services — including add-ons like DVRs and the cost of premium channels — are unregulated.
That said, price hikes are milder today than they were in the ‘80s and ‘90s, when cable companies had a monopoly in the TV industry. Back then, 10% annual price increases were the norm, says Arthur Gruen, president of Wilkofsky Gruen Associates, a media and telecommunications consulting firm. But prices will likely continue to rise as providers offer more channels, and as they face higher costs for carrying key sports and television networks, says Gruen.
5. “Even the phone companies are on our side.”
Instead of competing head-on for customers, as many customers hoped they would (because after all, they’re both selling Internet, cable and phone services), phone companies and cable companies are starting to partner up to sell each others’ services. In August, the FCC approved Verizon Wireless’s $3.7 billion purchase of airwaves from major cable providers, including Comcast, Time Warner Cable and Cox. As part of the partnership, Verizon Wireless agreed to sell the cable companies’ home TV services in the markets where Verizon FiOs is not offered. In exchange, the cable companies agreed to sell Verizon’s wireless services.
For consumer advocates, the deal was disappointing, since they were expecting the cable companies to compete more aggressively for phone customers and for the phone companies to battle for television and Internet customers. But instead, “the phone companies waved a big white flag,” says Mark Cooper, director of research for the Consumer Federation of America. “Essentially there’s a truce from a war we never really had,” he adds. Kula of Verizon, however, emphasizes that the company is still competing head-to-head for customers in markets where FiOs is available.
6. “We’re at the mercy of the networks.”
In addition to giving consumers a few more options for cable and Internet service, competition from satellite and phone companies has also given the television networks more leverage in negotiations with cable providers. Now that there are multiple outlets vying for their wares, television networks — especially those that broadcast popular TV series or live sporting events — can charge their clients (the cable, satellite, Internet and phone companies) more in subscription fees, says Arthur Gruen, president of Wilkofsky Gruen Associates, a media and telecommunications consulting firm.
Of the 100-plus channels cable companies offer in their most common plans, subscribers have to fork over the most cash for the sports networks. Case in point: ESPN tops the list of the most expensive cable networks, charging subscribers $5.01 a month; the two next most expensive channels — 3-D channel 3net and TNT — charge only $1.29 and $1.18, according to market research firm SNL Kagan. (The average price for all channels is 26 cents.) And the costs are rising: ESPN’s fees increased by 34% from the 2008 rate of $3.75, and TNT’s fees are up 26% over the same time period.
Of course, cable providers push back when those fees climb higher, sometimes leading to disputes that threaten to rob viewers of popular shows or other sporting events. The president of AMC Networks, which charges an average of 25 cents a month according to SNL Kagan, has said he thinks the network deserves a minimum of 75 cents a month. The network also set up a website warning Verizon FiOs customers that they might lose access to hit shows like “Mad Men” and “The Walking Dead.” If the two sides don’t agree on a deal before their contract expires at the end of the year, AMC won’t be available on FiOs. Verizon says it understands how important it is for customers to be able to watch shows and sports broadcasts they like and that it is continually negotiating with its video content providers. AMC and ESPN declined to comment on subscriber fees, but both networks say they’ve improved their programming over the years by introducing original dramas and expanding their sports programming. TNT said in a statement that a combination of live sports coverage including NBA games and original TV shows like “Dallas” “reinforce the must-have status of the network.” (Full disclosure: MarketWatch’s parent company, NewsCorp, owns cable channels that charge fees to distributors.)