The True Cost to Consumers of Pay TV’s Top Channels [Exclusive Subscriber Analysis]

The True Cost Consumers of Pay
Cheyne Gateley/VIP

It’s no secret that pay TV is facing a mounting existential challenge.

A record 6.2 million subscribers canceled their service from the six publicly traded operators between Q3 2019 and Q2 2020 (the most recent 12-month period with figures available), with Q3 expected to set a new record number of cancellations.

As noted in VIP’s “COVID-19’s Impact on Media” special report and presentation, one of the key reasons for the subscriber decline is the increasing cost of subscriptions, abetted by the erosion of value for the overall cable package as originals production shifts to streaming.

Those subscribers who remain will face fewer originals and sports on TV as old media begins to migrate to the streaming future. This is already occurring, not only with scripted networks but sports rights that used to be on cable moving to services like ESPN+, CBS All Access and Peacock.

This has created what is a growing problem for pay TV. Despite millions fleeing cable each year, in part or in full due to the price, individual networks continue to increase the monthly carriage fees they charge MVPDs for access to their content, which is in turn passed along to consumers.

In an attempt to quantify how this threatens the future of the cable bundle, VIP conducted an analysis of two data sets.

Kagan, the media research group of S&P Global Market Intelligence, provided affiliate fee estimates for the top 20 most expensive basic cable networks as well as the main four broadcast networks.

Adaptive consumer insights platform Wizer conducted an exclusive consumer study for VIP, with data from a question asking pay-TV subscribers which channels they regularly view being used in this analysis.

The results are that the most expensive basic cable channels are rarely viewed by a majority of subscribers. Of these networks, only FX is watched by more than 3 in 10 subs, with most seeing fewer than 1 in 5 viewing.

ESPN’s monthly fee versus reported regular viewership appears the most glaring, considering that almost 80% of pay-TV subscribers say they don’t regularly watch yet pay an estimated $7.64 a month for the channel anyway.

This of course has been the foundation of the U.S.’ “universal socialism” model for pay TV. Instead of, as in other countries such as Britain, where sports channels have always been a premium add-on in the way that HBO or Showtime are, in America all subscribers subsidize the few who watch the expensive networks. It’s telling that, in this analysis, 6 of the top 20 basic cable networks are sports, and two more have sports as part of their regular programming.

The Law of Reason suggests that as more customers leave the bundle due to price, at some point networks will have to concede defeat in their efforts to wring every penny out of remaining subscribers, lest they hasten the departures of more. Different business models will have to be adapted, whether it’s direct-to-consumer or the revival of à la carte cable.

In an effort to highlight how much regular viewers would have to pay on an individual basis if media companies wanted to maintain their current revenues, VIP estimated the “true cost” per viewer as well as the rate of increase this would see.

ESPN and sister college channels SEC Network and ACC Network come to an almost unfathomable amount, totaling $69.84 for the avid sports fan. Fox News would have to charge nearly $10 a viewer to yield current returns, whereas CNN would “only” need to charge $4.19 a month.

In a sign that the current sports-rights bubble is close to bursting, the only networks seeing what would be double-digit rates of increase versus current fees are all college sports nets.

The house of cards that is increasing cable costs is becoming more and more unstable. With networks unwilling to stop raising prices or prioritizing content for streaming services (with few exceptions, such as Paramount Network’s 2021 rebranding), it will only be a matter of time before either viewers have to pay full price for what they view or the affiliate-fee-increase bubble pops.