Cross-tier price hikes are an annual New Year's ritual in the pay TV industry, as predictable as the ball dropping in Times Square or turn-of-the-year carriage blackouts.
But given the current rate of linear pay TV customer attrition, maybe a little New Year's resolution on behalf of the major operators would have been a good thing.
In early December, fresh off losing 251,000 customers in the third quarter for its linear DirecTV platform, AT&T announced that prices for all of the satellite TV carrier’s tiers would shoot up by $2 to $8.
Cox Communications, meanwhile, began notifying customers that it would institute across-the-board price increases starting Jan. 7, with rates for video packages increasing by $1 to $5 a month, and internet tiers shooting up $2 to $4.
A few days later, Comcast and Dish Network, which also experienced significant cord cutting in the third quarter, chimed in with increases of their own. Comcast had already upped its programming “surcharges” in October. In fact, since it first instituted the sneaky fees it passes on to customers for things like broadcast retransmission and regional sports networks in January 2015, Comcast had increased them by 241%.
On the pay TV side, Cox representative Todd Smith told Fierce that “the rising cost of programming content continues to be the main reason why our video prices increase.”
“Like others in the industry, as programming costs increase, we periodically adjust pricing, added AT&T spokesman Eric Ryan. “These prices are still a great value and [are] very competitive.”
Of course, with the traditional pay TV business having shed as many as 3 million customers in 2017, and low-cost virtual pay TV options proliferating, you’d have to think that this is the year traditional price-spiking tradition might end … or at least ebb a little.
“We’ve long since passed the point where programmer price increases are self-defeating,” MoffettNathanson analyst Craig Moffett told Fierce in an email. "The biggest driver of cord cutting is that prices are too high. But the solution of too many programmers is to raise prices even faster to compensate. It’s like a car that is headed for a cliff, with a driver that believes the only solution is to step on the gas.”
According to S&P Global Market Intelligence, consumer cable and satellite TV bills have increased 53% since 2007, to $100.98 in 2017.
“We must pass along a portion of these higher costs to our customers,” a representative from Comcast told FierceCable via email, echoing Cox and AT&T's defense regarding rising program licensing costs. "As a result, on average, nationally, the customer bill will increase by 2.2% in 2018.”
The increases also come amid the Republican-led corporate tax rate rollback, a polarizing bill passage that has led many telecom service customers wondering what companies like AT&T are doing spiking prices at a time when their tax rate is decreasing from an effective rate of 32.7% to around 21%, saving the company perhaps billions.
Operators defend price hikes
For their part, operators insist programming cost increase are, in some cases, cutting into their margins, even exceeding the increases on customer pay TV bills. Operators also say that user experience improvements justify price increases.
“Cox also continually adds new features and functions to services, enhancing the value for customers,” Smith said. “For example, via the new Contour video services, we’ve added a voice remote, better search and TV Everywhere capabilities.”
For its part, Comcast also touts the user experience benefits of the X1 video platform, on which Cox’s Contour system is also built. The ever-evolving X1 platform not only includes Comcast’s now-robust Voice Remote technology, Comcast has also integrated OTT services including Netflix and YouTube directly into the interface.
But as they cram yearly tiered price increases and surcharge spikes down the throats of their customers, cable operators have the compounded challenge of also working to steadily increase broadband pricing.
It appears they have a little more price elasticity in this area.
“We have argued that broadband is underpriced, given that pricing has barely increased over the past decade while broadband utility has exploded,” New Street analyst Jonathan Chaplin wrote in a note to investors back in October. “Our analysis suggested a ‘utility-adjusted’ ARPU target of ~$90. Comcast recently increased standalone broadband to $90 (including modem), paving the way for faster ARPU growth as the mix shifts in favor of broadband-only households. Charter will likely follow, once they are through the integration of Time Warner Cable.”
Again, operators used the carrot of user experience improvements to justify these price increases.
“We continue to make significant investments in our network and technologies to give customers more for their money—like faster internet service and better Wi-Fi,” the Comcast representative said.
Added Cox’s Smith: “We’ve consistently increased internet speeds more than 1000% over the last 17 years and we’re investing an unprecedented $10 billion in our infrastructure in the next five years. Part of that investment includes the nationwide deployment of DOCSIS 3.1, which builds on the strength of Cox’s fiber-based network and gives us the ability to roll out gigabit internet speeds throughout more neighborhoods at a faster pace. “