Comcast and the Cable Industry

GMMZ Box

GMMZ Box (Photo credit: isriya)

Last week I wrote a blog about my poor experience in signing up with Comcast for cable modem service. Within a day after writing that article I saw several web articles about Comcast and the cable industry that I found very interesting.

First, just a few days after I signed up with Comcast they announced their next set of rate hikes. They raised the cost of leasing their cable modems from $7 to $8 per month. I took their cable modem due to the hectic process of moving into a new home, but I plan soon to replace it. It’s hard justifying spending $96 per year to lease a device that I can buy for a little less than that, and the $8 fee is really out of line with Comcast’s costs. Comcast takes advantage of the fact that most people are not technical enough to feel comfortable installing their own cable modem.

Comcast also raised the price of basic cable between $1 and $2. Basic cable is the small package that includes the traditional network channels plus some freebies like shopping networks. Comcast is also raising the price of other tiers by $2, meaning an average customer is going to see an increase of $3 – $4.

But what was not included in the announcement is that Comcast is introducing a new fee of $1.50 called a ‘broadcast fee’. This supposedly is to offset some of the increased in costs they are seeing in basic channels due to the cost of retransmission deals with traditional broadcasters. Networks like Fox, NBC, ABC and CBS have been raising rates significantly faster than inflation in recent years and this charge supposedly offsets some of those fees. However, the real reason that Comcast is including this as a separate rate is to be able to advertise lower rates for all of their cable packages than what customers actually pay. I would hope the FCC will slap them for this practice, because this new rate applies to every cable customers and to not include this as part of basic rates is a huge deception and false advertising.

I also saw a long article from Business Insider that says that “TV is Dying, and Here are the Stats to Prove It.”  It’s an interesting article and worth the read. I won’t repeat all of their statistics, which show in aggregate the cable industry has tipped over the edge and is now shrinking as an industry. Cable companies like Comcast and Time Warner are losing customers a lot faster than the industry as a whole

Telcos like Verizon FiOS and AT&T UVerse are gaining customers at the expense of the cable companies, but the industry as a whole is losing customers. This article makes a strong case that the problems experienced by the cable industry are mostly economic and that the price of cable is starting to force customers from the market. Some other sources that I have cited in the blog in the past put a lot of the blame on customers have alternative sources of content on the Internet. Certainly it is some of both, but cable is getting so expensive and continues to have big annual rate increases that are convincing customers that they need to seek an alternative. Throw into this the negative feelings that a lot of customers have about the cable company’s customer service and there are more and more people poised to drop the big cable packages.

I remember a time about four or five years ago when you couldn’t turn on a consumer show or open a magazine that didn’t have an article that was telling people to drop their home phones. And people listened to the advice and more than 40% of homes have now dropped landlines. I am now seeing the same sort of discussion about dropping cable TV. Most people are creatures of habit and most households are going to need repeated convincing to get them to drop their cable. But as the media keeps urging them to do so, and as their neighbors tell them it is okay to do so, and as the cable companies keep raising the rates, more and more households will drop cable. Right now the rate of drop-off is relatively slow, but it might well turn into a flood in the same manner that happened with landlines. Many households will never drop cable, but enough of them could do so to transform the industry in a very short period of time.

The current cable model is broken and it’s just a matter of how long it takes for the wheels to come off. The industry is driven by the content providers who are driven by the demand that their corporate earnings increase year over year. In an environment where the number of subscribers is shrinking the industry is now at the beginning of a death spiral – rate increase drive away customers, which forces content providers to increase rates, etc. And death spirals always end with, well, death.

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