Cable and satellite TV bills have never been higher, and more mad-as-hell consumers are cutting the cord. And nothing, not even consolidation among operators, stands to reverse the trend.
Several cable M&A scenarios are reportedly in play. Time Warner Cable is said to be the object of a joint bid by Charter and John Malone's Liberty Global, while Comcast has also explored the possibility of a TW Cable bid. Cox Communications is also mulling a bid. Under another rumored Westeros-like machination, Comcast and Charter would team to divvy up Time Warner Cable's territories between them.
even if Comcast grew its video base, say, 50% to 30 million customers -- a questionable outcome, given anticompetitive concerns in Washington -- Kabletown still wouldn't be in a position to tell the Disneys and Viacoms of the world that it won't pay a single penny more the next time contracts come due.
Even if big MSOs merge, they still won't have greater pricing leverage against the handful of media companies that control most of what goes on TV today, says Bernstein Research analyst Todd Juenger.
That's because consolidation of cable ops wouldn't change the number of choices consumers have in an given market, "and therefore doesn't change the balance of negotiating power between distributors and content owners," he wrote in a research note Tuesday. Comcast threatens to drop ESPN? Subscribers will flock to satellite or telco TV options.
SEE ALSO: Cord-Cutting Slows in Third Quarter, But Pay TV Is Still Shrinking
Even the combination of DirecTV and Dish Network -- a tie-up that's been discussed around for years, but is seen as unlikely to pass regulatory muster -- wouldn't have much effect, according to Juenger. "Satellite consolidation would be potentially more disruptive, as it would take away one distributor from every household. But enough choices would still remain that the overall balance of power wouldn't pivot," he wrote.
Nine companies -- Disney, Fox, Time Warner, Comcast/NBCUniversal, CBS, Viacom, Discovery, Scripps and AMC -- control about 90% of the professionally produced TV content in the U.S., spending an estimated $45 billion per year on that content, according to Juenger. "To date, it has been impossible for a distributor to assemble a pay-TV offering that can successfully attract and retain subscribers without having the content from all of these nine companies."
So, that means pay TV bills will continue to climb faster than the overall cost of living for U.S. consumers.
Comcast's average monthly revenue per video subscriber for the third quarter of 2013 was $78.95, up 5% from $75.46 a year earlier. DirecTV's Q3 average monthly revenue per U.S. sub rose 6.2%, to come in at $102.37 per customer. (Which also shows DirecTV customers have higher willingness to fork over money for television.)
Today, the sky isn't falling. Collectively, the industry dropped about 80,000 net subscribers over the 12-month period ended in September, according to Leichtman Research Group -- a drop in the bucket in an industry with 100-plus million customers.
But the pay-TV industry's affordability problem will continue to grow, and operators haven't found an effective way of dealing with it.
Here's Comcast's latest move to explain the growing cost of TV: The cable giant is tacking on a $1.50 monthly "broadcast fee" to customer bills to call attention to how much it pays to retransmit local TV stations. But instead of shifting blame to broadcasters, that's only going to make Comcast customers see themselves getting further nickel-and-dimed.
A quick aside about a la carte. If the government forced networks and distributors to offer individually priced channels at retail -- yes, that could lower the total cost of someone's bill. But the cost per channel would skyrocket (ESPN could go up to $30 per month, according to one estimate), and consumers would end up paying much more for far less. A broad shift to a la carte would spell doom for many networks.
If millions of pay-TV customers bail, the cycle of price increases will accelerate as programmers seek to offset the declines. Longtime industry analyst Craig Moffett has conjured up this analogy: In a car racing toward a cliff, the industry is pressing on the accelerator with steady and sizable increases in programming costs.
I see it more as the frog in the pot of water that rises to the boiling point before the frog realizes it. But either way, pay-TV players are facing a day of reckoning in one form or another.
Pay-TV Prices Are at the Breaking Point -- And They're Only Going to Get Worse
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