Who is Dropping Cable?

RCA_CT100-hdFierce Cable reports that the average revenues per customer are rising at many cable companies as they lose customers. This seems to indicate that a lot of people that are dropping cable were buying the lower-priced packages.

Here are some of the numbers they reported from the second quarter of 2015:

  • DirecTV lost 133,000 customers but saw the average revenue per customer rise 6.4% to $109.93.
  • Dish lost 81,000 customers but average revenue per customer rose 4.4% to $87.91.
  • Charter dropped 33,000 customers and saw average revenue jump 4.5% to $92.88.
  • Overall the largest cable providers combined saw average revenue per customer in the quarter rise by 6.7%.

Now to be fair about those numbers, a lot of these companies raise rates in the first quarter each year, making the second quarter the first period that sees the full impact of rate increases.

But the numbers do hint at the underlying cause of cord-cutting. I will admit that I’ve always figured cord cutters were coming from the tech savvy and from those who have decided that that they can live with the many alternatives for entertainment available on the web. My perspective has probably been influenced by the cord cutters I know, and it’s always a dangerous thing to take personal experience and extrapolate it to a national trend.

But if it’s true that cord-cutting is more driven by economics then we have a different phenomenon. People are being driven off cable because they are getting priced out of the market. I’ve been predicting for years that this day would come because cable rates have been rising far faster than inflation for a long time. And that eventually has to have an effect.

Just look at the above numbers. I am a bit astounded by the DirecTV numbers. If $109.93 is the average revenue per customer then there are a lot of people spending a lot more than that to offset the low special prices the company offers to new customers.

It’s easy to forget how fast rates can get out of control. But an $80 cable package will cost $105 in five years with a 5.5% annual rate increase or $112 with 7% rate increases. Looking at all of the big companies, one has to wonder how they are going to sell the value of their product 5 and 10 years from now.

I can see how cable rates are becoming unaffordable for lower-income families, but it’s not going to be that long until this starts being out of the range of a whole lot more families. Even without the pressure from OTT programming, the industry is headed down a path of real trouble.

And you have to feel sorry for cable companies. The cost of programming has been skyrocketing. I have a few clients who have seen 15% rate increases over the past two years. They grimace every time they have to raise rates and they are all seeing customers falling off their systems.

Big companies like Comcast are probably going to find a competitive option for the big cable packages. They are already looking at their own version of OTT programming. But unless the FCC can break the monopoly of the programmers the smaller cable companies are going to have very few options other than to watch their customers disappear. Almost all of my clients are losing cable customers at a faster rate than the large ones and I have a number of them already seeing 5% to 7% annual customer dropoff.

But the FCC can fix the problem if they choose. One of the biggest problems today is that the major programmers make cable providers take all of their huge suite of channels if they only want one of them. We all know there are a ton of channels on cable systems that hardly anybody watches but that everybody is being forced to pay for. If cable systems could choose the channels they want, like is possible with products in almost every other industry, then they could control their cost and could get the rate increases back under control.

3 thoughts on “Who is Dropping Cable?

  1. This is similar to the market dysfunction that occurred in the individual health insurance market in the last decade. Premium rate increases drove potential insureds out of the market and insurers had to raise premium further to make up for the loss, accelerating the collapse.

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    • You’re right. The insurance meltdown is a classic example of a death spiral and the same thing could happen to cable TV. Everybody know that cable is in trouble, but nobody knows if it will slowly melt away over decades or collapse more explosively. If cable has entered the beginning of a death spiral it could go to pot a lot faster than what people expect.

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      • There is also a structural change going on: the decline of the mass market, real time broadcast media. My impression the only area that’s protected from this is live sports programming. Cable TV could end up as a specialized service delivering only pay on demand live sports programming.

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