Cable TV Prices Continue To Rise At Over Four Times The Rate Of Inflation by Andrew Dodson, Cut Cable Today
If cable TV prices increased consistently with the U.S. inflation rate over the past 18 years, you’d be paying $35 a month for about 165 channels and there would likely be a lot less cord cutting going on.
But to no one’s surprise, that isn’t the case.
ValueWalk's Raul Panganiban with Maurits Pot, Founder and CEO of Dawn Global. Before this he was Partner at Kingsway Capital, a frontier market specialist with over 2 billion AUM. In the interview, we discuss his approach to investing and why investors should look into frontier and emerging markets. Q2 2021 hedge fund letters, conferences and Read More
According to the Federal Communication Commission’s most recent cable TV prices report, published in December 2014, the average price for “basic expanded cable service” — the most popular subscription among cable customers — is $66.61. In 1995, it was $22.35. That’s an average price increase of 5.9 percent each year for the past 19 years. The average U.S. inflation rate in that same time frame was 2.3 percent.
So, the price of basic expanded cable has increased more than 2.5 times the rate of inflation from 1995 to 2014.
But that’s not even the worst of it.
Remember, that’s just talking about “basic expanded cable service” packages which are most popular with consumers, not the actual average overall price cable TV customers as a whole are paying. That number is even higher with today’s average cable bill coming in at a hair under $100 a month, increasing by about 8 percent a year since 2010 when customers were paying $71.24 a month, based on information from the Leichtman Research Group. That’s almost 4 times the rate of inflation during that period of time, and things are only getting worse.
Just over a month into 2016, the cable (and satellite) companies are once again raising their prices. DirecTV and AT&T Uverse customers are seeing their subscriptions go up between $2 and $8 a month, depending on the channel package. Dish Network customers are also seeing a similar bump in their monthly bills, and Comcast customers can expect their bills to increase by about 3.9 percent in 2016. However, Time Warner customers might get the worst of it. These subscribers may see their cable bill swell by $10 or more each month early this year as the company jacks up its various hidden fees.
While irritating, an industry outpacing the rate of inflation isn’t uncommon, says David Hebert, a professor at Ferris State University who holds a Ph.D. in economics from George Mason University. Construction costs, for example, are currently outpacing inflation because by nearly twice as much. Airline fares last year climbed 2.7 percent, compared to a 2.1 percent gain in the Consumer Price Index during the same time period. And the big one: health care rates.
“The CPI is basically an average of the increase the price of various goods, so you will see some industry prices increase greater than this average and others increase by less just like it’s not uncommon to see a man who’s taller or shorter than the average height of 5’-9”,” he said. “What is uncommon is such a large difference between the CPI and the increase in price in any industry just like it’s uncommon to see a man in the US who’s 7’5.”
That could be the case for cable. Take a look at the chart:
Cable TV – Huge Price Increases Cause Customers to Flee
Hebert says cable companies need to “figure something out quickly,” or they’re going to see “customers leaving them in droves.”
That’s already happening. In the third quarter of 2015, pay TV lost 300,000 subscribers. Today, it’s estimated that 15 percent of American adults consider themselves cord cutters, opting to use more affordable streaming services like Netflix, Amazon Prime, and the live streaming service Sling TV.
“Right now, there’s very little that we can’t watch online, and, in principle, there’s nothing that can’t be watched online,” Hebert said. “Really, what (cable companies) should be doing, if they’re not already, is finding ways to increase the quality of their internet services.”