Cable, satellite TV prices continue to rise

By | April 18, 2011
Prices of most Satellite TV services are continuing to rise this year despite intensifying competition, and industry analysts say that trend is unlikely to end any time soon.

“People hate to pay their cable bill like they have to pay taxes,” said Brian Mitchell, a media analyst for Kaufman Bros., a New York investment bank. “It’s the programmers who have been raising the price up, and the cable companies have just been passing it through.”

Comcast Corp. recently announced a rate hike for Massachusetts cable TV customers, as it did in March of last year. The average bill is increasing by 3.2 percent this month in Eastern Massachusetts, spokesman Marc Goodman said. Philadelphia-based Comcast – by far the largest cable company in the region – has 1.8 million customers in Greater Boston.

The rate increase does not immediately affect Comcast customers who have signed up for promotional offers such as the bundled Triple Play telephone-Internet-cable TV package. Those deals lock in rates for 12 or 24 months.

Cable companies have to negotiate deals with hundreds of networks for the right to carry their programming, and those costs have been rising steadily in recent years.

Industry-wide, programming costs rose 7 percent in 2010, to $36 billion, according to research from Convergence Consulting Group Ltd. of Toronto. Comcast’s programming costs rose 7 percent, to $7.5 billion.

“Their cost of programming continues to go up quite radically,” said Brahm Eiley, Convergence’s president. “Unfortunately, given those costs, they have to pass them on to the consumer.”

Content providers are tacking on several new charges for cable companies.

Networks have begun charging cable companies for the right to carry local affiliates. As stations’ advertising revenues have declined, networks have looked to the new fees to replace the lost income, Mitchell said.

Comcast also is paying more to programmers for the right to broadcast shows and movies on its Xfinity service, which can be viewed on computers and mobile devices.

The rising rates have drawn heat from consumer advocates and politicians including Boston Mayor Thomas Menino, who in February protested the Comcast rate increases that have raised the monthly price of basic cable, the lowest rung of service, from $9.05 to $15.80 in recent years. Menino said the increases have disproportionately hurt low-income households.

Some networks require cable-service providers to include popular but expensive channels in their basic packages. ESPN, the highest-priced channel, costs the cable companies approximately $8 per subscriber, Mitchell said.

“If you want to carry ESPN, it’s got to be in your basic package, even for my grandmother who never watches sports,” he said.

Comcast’s biggest local cable TV competitor, Verizon, has no current plans to raise rates on its FiOS service, spokesman Phil Santoro said. The FiOS system serves roughly 100 communities in the state. Verizon raised prices on some packages by as much as 30 percent in 2010.

Satellite-service providers face the same rising programming costs and are charging more as well. DirecTV hiked prices approximately 4 percent this year, but it said rates will remain unchanged in 2012.

For now, Internet-based TV services are not a practical alternative for most viewers, analysts say. Convergence estimated that only 2 million out of 100 million U.S. pay-TV subscribers will have “cut the cord” between 2008 and the end of 2011.

NetFlix charges $10 a month for its most common programming package, which enables viewers to watch 120,000 TV shows and movies streaming from the Internet. The service requires a converter such as an Xbox 360, and most TV shows are not available until after the season ends.

Apple’s iTunes store has more up-to-date programming, but only 80,000 titles, and it costs more on a per-hour basis than cable, Eiley said.

The typical American household watches an average of 240 hours of TV a month and pays $74 for TV services. That works out to 62 cents an hour, while iTunes typically charges $1.50 to rent or $3 to buy.

While NetFlix has the lowest costs, its business model is not sustainable in the long term, said Mitchell, the Kaufman Bros. analyst. It negotiated programming at below-market rates that are unlikely to be renewed.

The best recipe for lower prices would be a switch to an “a la carte” price structure in which viewers can choose individual channels rather than a programming package, Mitchell said. But networks resist the idea because, in the current system, they can force cable companies to carry their less popular channels in exchange for the rights to carry the higher-rated ones.

“It’s an oligopolistic structure on both the programming and the distribution side,” Mitchell s

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