Despite recent declines in subscribers, subscription TV providers are pushing ahead this year with price increases.
Nearly all of the major cable, satellite and phone companies offering TV service are jacking up prices, according to a Sanford Bern-stein research report published Monday, with Dish Network leading the pack by raising subscription prices on average by 11%.
Annual price increases are nothing new for cable operators, satcasters and telco-TV providers, but the latest round of hikes follows an unprecedented year for the business in which providers saw video subs decline overall for the first time ever. The number of people paying for a subscription TV package fell by 216,000 in the second quarter and an additional 119,000 in the third quarter, according to recent reports by research firm SNL Kagan.
Execs have blamed the dropoff on economic conditions and not on cord cutting, the much-debated migration that some consumers are making from traditional cable and sat-TV subscription services to watching a limited menu of movies and TV shows via broadband services such as Hulu and Netflix.
Regardless of whether cord cutting is a major threat, the move to raise prices when so many con-sumers are on tighter budgets could
accelerate declines in the subscription TV market.
“Years of price increases … have made price increases a double-edged sword,” Sanford Bernstein cable analyst Craig Moffett wrote in a report titled “U.S. Pay TV: Death, Taxes and Cable and Satellite Rate Hikes.” (The report used the term “pay TV” to encompass all subscription TV service, not just premium channels a la HBO, Showtime and Starz.) Moffett used local news sources to track company-by-company average rate increases, warning in some cases that the sample sizes are small.
Subscription TV providers cite escalating programming costs as a main reason they must continue to raise rates. Those costs rose more than 7% at some major providers between 2007 and 2009, according to research outfit SNL Kagan. And with providers now having to pay retrans fees to the broadcast nets, the industry said it expects those costs to rise even more.
But some critics have little sympathy. “My question to the industry is why not look at breaking up programming bundles and giving subscribers more options?” asked Parul Desai, policy counsel for the watchdog group Consumers Union. “These rate increases are unacceptable.”
While Dish wins the prize for the biggest increase, the company has said it will implement a freeze on rates for the following two years. Moffett questions the strategy.
“It maximizes risk of sticker shock (and therefore churn) at a time when the economy is likely at its weakest,” he said, “and leaves Dish without the flexibility to reflect cost increases in pricing thereafter.” Dish did not raise rates in 2010.
Marc Lumpkin, a Dish spokesman, said the 2011 rate increase is deceptive in that it is coming off a lower basic price than its competitors. With the increase, Dish’s basic offering (120 channels) of $45 is still much lower than competitors that charge about $60 for basic, Lumpkin said. In addition, Dish will offer free premium movie programming (Starz, Encore) for a year to all of its 14.2 million subscribers in 2011 in celebration of the satcaster’s 30th anniversary and hold the line on boosting equipment prices.
Among Moffett’s findings on other rate hikes for 2011: Time Warner Cable will raise prices on average 7%; Comcast, DirecTV and AT&T, 4%; and Cablevision, 3%. Verizon has not announced pricing changes yet for its FiOS service.
Some providers, including Time Warner Cable, announced late last year that they would be offering lower-priced economy packages to accommodate those feeling the economy’s pinch on their wallets. Time Warner Cable’s TV Essentials package, with just 39 channels, will be offered for as low as $30 a month in some cities.
What’s more, Moffett contends that some cable companies are tinkering with the price for their stand-alone broadband service to try to boost TV subscriptions. By raising rates for folks who get only broadband, presumably satellite TV subscribers receiving their Internet from a cable company, the cable ops will compel such subs to jump to cable to get a better deal in a bundled offering of TV and broadband. “Satellite operators would then be left with the unpalatable options of either raising their video rates significantly above cable’s to maintain margins in the face of rising programming costs,” Moffett said, “or, alternatively, forgoing margins in order to maintain subscribership.”
As for the nation’s largest pay TV provider, Moffett suggested that Comcast may be “treading particularly lightly now” on rate increases until its proposed merger with NBC Universal wins regulatory approval. “That would suggest that even more of its pricing actions will be backend loaded this year,” he said.