The programmer is Viacom and they own channels like MTV, Nickelodeon, Spike and Comedy Central. The dispute is with the National Cable Television Cooperative (NCTC) which represents 890 of the smaller cable companies in the country. That’s just about everybody who isn’t large.
The current contract between Viacom and NCTC expires on March 31. None of us know the exact numbers, but a NCTC spokesperson says that Viacom wants a rate increase that is 40 times the rate of inflation. That itself may be an inflated claim, but in 2012 Viacom asked for a 30% rate increase from DirectTV. When DirectTV refused to pay, Viacom pulled their channels off the air for DirectTV until the issue was settled.
And Viacom is still today asking for huge fee increases. If Viacom was the only programmer doing this we could say that they are extra greedy. But the fact is that all of the programmers are doing the same thing. Every programmer is increasing fees to cable systems at rates far above inflation. The cost to cable providers for programming has climbed over 7% per year for nearly a decade, and in recent years I know some systems that have seen increases over 10%. Cable companies have no choice but to pass these increases on to customers and so we keep seeing big rate increases year after year.
But we are now at a time when customers are getting tired of the price of big cable packages and when a significant percentage of customers are thinking about abandoning cable. To keep pushing these big increases make no market sense. Just do the math to see how insane this is. For a customer paying $50 per month today, these increases will increase their rates to $70 in five years and $98 in ten years. Somebody paying $70 today will see rates of $138 dollars in ten years.
This can’t be sustained. It seems as if programmers like Viacom are making the risky bet that people will not cut the cord and find an alternative to the big cable packages. But every one of my smaller cable clients is losing customers, and at a faster and faster pace. They hear the stories every day of people who are fed up with the big monthly bill and who decide that they can get by with rabbit ears, NetFlix and AmazonPrime.
I’ve heard the idea that once most people drop cable that all of the networks will just go a la carte and sell to people over the Internet. But that is naïve and there are only a small handful of channels that have enough appeal to survive in an a la carte world. It’s likely that people will pay a monthly fee to get ESPN or Disney and maybe even Comedy Central. But probably 90% of the channels on cable systems will die if the big cable model breaks.
So why are Viacom and the other programmers being so greedy? One can chalk part of it up to the large company mentality that all that matters is the earnings next quarter. But one can also blame amazing arrogance in that they believe that the people of the US will keep paying huge fees to watch them. Are there really that many households where Nick at Nite is so important to people that they will pay $100 monthly in order to watch it? As OTT programming gets better, I foresee a day in the not too distant future when customers will bail on cable companies in droves. And then the hubris of the programmers will be fully exposed. The programmers are pushing hard to speed up the day when they will fail. If that is not insane, what is?