The Greed of the Programmers

If you use social media you may have noticed a flurry of activity at the end of December warning that small cable TV providers across the country could lose the Fox channels on January 1. That includes Fox News, Fox Business, FX, National Geographic, FS1, FS2, and the Big Ten Network. The dispute was with NCTC, a cooperative that negotiates rates for most of the smaller cable companies in the country.

Fox was asking for what has been described as a 20% rate hike on programming. Fox was seeking a big rate increase to recognize that they have the number one network on cable TV with 1.5 million daily viewers. NCTC finally struck a deal with Fox on December 31 and the channels didn’t go dark – but the cost of buying the Fox networks went up substantially. Back in September, the Fox channels went dark for ten days on Dish Networks when the satellite company refused to accept the same big rate increase.

This is not the first big rate increase from Fox. ALLO Communications, a sizable fiber overbuilder, says that Fox has raised rates 800% since 2004, To put that into perspective, the cost of living in the US has increased by 36% since 2004.

The Fox rate increase is the perfect metaphor for the woes of the cable industry. Fox is not unique, and during the 2000s most cable programmers raised rates much faster than inflation. Cable companies have had little choice but to pass the rate increases along to customers. The programming cost increases have led to a steady annual rate increase for consumers. The soaring price of cable has led to the cord cutting trend and customers are bailing from traditional cable TV by the millions and at an increasing pace.

As a whole, traditional cable TV has probably now entered what economists call a death spiral. Most programming contracts are for 3 – 5 years and the cable TV companies already know of the big programming cost increases coming for the next few years. As cable companies keep raising rates they will lose more customers. The programmers will likely try to compensate by raising their rates even higher, and within a short number of years, cable TV will cost more than what most homes are willing to pay.

A company like Fox can weather the storm of disappearing cable subscribers since they know that all of the online alternative networks like Sling TV, YouTube TV, and others will carry their major networks like Fox News, Fox Business, and the sports networks. The chances are that the primary Fox channels will be solid and steady earners for the company far into the future. However, the same can’t be said for many cable networks.

The online cable products have far smaller channel lineups than traditional cable. There are more than 100 traditional cable channels that are losing subscribers from cable companies and not replacing them with online programming. It’s only a matter of time until many of these networks go dark, as programming revenues won’t cover the cost of operating the network.

It’s easy for people to hate cable companies since that’s who people pay every month. Cable providers like Comcast and AT&T share in the blame since they are both the two largest cable providers and also owners of content. All cable companies share some blame for not yelling bloody murder to the American public for the last decade – and for not fighting back. The cable companies instead started sliding the programming rate increases into hidden fees. However, the fault ultimately lies with the greed of the programmers. These are mostly big publicly traded companies raise rates every year to please stockholders.

It’s no longer good enough for corporations to make money, they are expected to increase bottom line quarter after quarter, year after year. We’ve only been talking about cord cutting for a few years, but the industry has been declining for over a decade. In 2010 there were nearly 105 million subscribers of traditional cable TV, and that number dropped to just over 83 million by the third quarter of 2019. It’s easy to think of cord cutting as a recent phenomenon, but the industry has been quietly bleeding customers for years. Sadly, the programmers are still denying the reality that they exist in a dying industry and are likely to continue to raise rates like Fox just did.

The supply and demand side of any sane industry would have gotten together years ago and figured out a way for the industry to be sustainable. However, the combined greed of the programmers and the big cable companies has resulted in the runaway rate increases that will doom traditional cable. It’s hard to know where the tipping point will be, but we’ll be there when cable networks start going dark – it’s just a matter of time.

4 thoughts on “The Greed of the Programmers

  1. While I’m 100% sympathetic with what you’re saying about the failure of the programmers to make a stable business that benefits it’s customers without gouging them.

    But, I’m not sure it’s so much a greed problem as it is a capitalism problem. Or, at least it’s not restricted to the programmers. As you also say, all this is driven by the need to maintain increasing stock prices. And, the challenge of how to continue profit growth in the face of saturating markets. (And, the flip side, for consumers, how to have manageable prices in the face of inadequate competition.)

    The main problems I see are monopoly providers, too little competition, and, as a result, little new for providers to innovate and create new value…

    Why innovate when you can just charge more?

  2. the fault ultimately lies with the greed of the programmers.

    Fox News is not merely number one in the ratings: many of the subscribers which I encounter are ONLY willing to pay for Fox News, and would not pay for anything else — so they are technically buying a subscription TV package just for the sake of one channel. Fox has done their homework and is well aware of this demographic. When they see providers forcing people to pay for a big bunch of channels from other networks, but Fox is the only reason that people are subscribing in the first place, it’s understandable why they would want some kind of sales commission. I am not saying they are NOT greedy, but if you could build your own channel package, Fox would have no justification for the rate increase.

    Cable providers are equally guilty of price gouging here, because they do not offer the customer à la carte channel selection which discloses the price of each channel and marks them up at the same rate. Many cable operators will also compel internet-only subscribers to subsidize their TV services by charging higher prices for internet if you dont purchase a TV subscription. The so-called “bundle discount” is a form of racketeering which is generally prohibited by state & federal law, though it is rarely enforced: These predatory pricing schemes which conceal the true cost of the service are designed to protect the incumbent content monopolies. Bundle pricing discourages competition & comparison shopping, and should be prohibited for any network that operates on public land. But even where municipal cable systems are funded by government grants, the practice is still tolerated.

    • I’m sure there are viewers that want Fox News over other programming, but that’s true of many other networks as well. Fox News is not number one, as shown in the following. This shows average daily views of the top 10 networks as seen on cable TV systems and satellite in 2019 (in millions) and in 2014 which was the peak of the cable subscriber numbers in the US:

      2019 2014 Change
      1 CBS 7.14 9.38 -24%
      2 NBC 6.33 8.26 -23%
      3 ABC 5.19 6.39 -19%
      4 Fox 4.62 5.97 -23%
      5 FoxNews 2.50 1.75 43%
      6 ESPN 1.75 2.21 -21%
      7 MSNBC 1.74 0.59 195%
      8 ION 1.34 0.28 379%
      9 HGTV 1.31 1.36 -4%
      10 Uni 1.30 2.97 -56%

      There were less than 87 million cable subscriptions in the US at the end of 2019 and no network is watched by any sizable percentage of homes daily. CBS, the number 1 network is only viewed daily by 8.3% of cable households, while Fox News is at less than 3%. There is no network that is driving the industry (which is what you would suspect with hundreds of channels).

      One of the biggest reasons Fox News wants a rate increase is that their daily viewers are up since 2014. But so are the viewers of MSNBC, ION and HallMark Channel (sitting at number 11). What small cable operators are upset about with Fox is that their rates have increased 800% since 2014 while their viewership is only up 43%. There is no other way to describe this except greed.

      Interestingly, Fox News has added 750,000 viewers per day since 2014 while the regular Fox broadcast network has lost 1.35 million viewers per day.

      • no network is watched by any sizable percentage of homes daily.

        That I’ll agree with — people are clearly spending more time online and less time watching TV.

        Fox News is not number one, as shown in the following.

        I guess I should have qualified that by saying “number one among the channels that you would have to pay to watch.” While the free broadcast channels naturally have more viewers, they are not included in the Neilsen cable ratings:

        Cable Ratings 2019: Fox News Tops Total Viewers
        Fox News was the top-rated basic cable network among total viewers for a fourth year in a row, with an average of 2.57 million in L+7.

        What small cable operators are upset about with Fox is that their rates have increased 800% since 2014 while their viewership is only up 43%.

        Now this puts things into perspective. Thats a huge increase in viewership for any cable channel, but cable systems are not gaining TV subscribers at that kind of rate. Point taken.

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