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Why Is Your Cable Bill So High?

By John Bergmayer

Why is it that cable bills keep getting higher? While a lot of the blame falls on the cable industry itself, even some large cable companies can find themselves squeezed by high programming costs that they then pass along to consumers.

For years, cable prices have increased at a rate faster than inflation. According to a report released last year by the NPD group, the average cable bill (just video, not including broadband or voice) reached $86 per month. Compared to an $8 per month Netflix subscription, or an Amazon Instant Video subscription that works out to about $7 per month (and includes free shipping on actual physical goods sold by Amazon for a year), that's a lot.

Cable certainly provides access to a lot of shows you can't get anywhere else, some of it live programming, like sports, that don't fit neatly into the on-demand Internet mode. But do consumers really get more than 10 times the value from cable that they get from lower-priced alternatives? A recent FCC price survey found some cable prices rising about 6% in a year. Is cable really getting that much better year after year?

Some people might just say that if people pay for something it's worth it to them. Q.E.D. But increasing numbers of people are cancelling their cable subscriptions, never getting one to begin with, or hanging on only because of one or two much-watch kinds of programming. It seems that the cable industry is leaving money on the table with its current strategy. People have other choices for their entertainment spending--and everyone knows the economy has not been in the best shape the past several years.

Something just does not compute. How can cable prices keep rising even as more people spend more time online instead of watching TV, regardless of the state of the economy as a whole, and to an extent that is leaving many consumers behind?

Public Knowledge has often pointed to problems in the cable industry itself. Cable companies can use their market position to get exclusive access to some content that is not made available to online competitors. This is partly why some content just isn't available online. They can use their control over broadband pipes to squeeze out bandwidth-intensive online video. And they have benefited for years from a regulatory system that gives them local market power--while this has lessened slightly and now they face some competition (from satellite, and to a lesser extent from online video and over-the-air broadcast), an industry that operates by stringing wires down streets and into homes is never going to be as competitive as most other markets, unless public policy expressly tries to make it so. In a more competitive environment, cable companies might give viewers more control over the packages they subscribe to--offering more channels à la carte, or selling a more diverse mix of programming bundles that allow people to skip paying for programming they don't watch.

But it's important to recognize something--a dysfunctional market structure will end up hurting consumers, regardless of where the exact dysfunction is. And in addition to all the problems in the cable industry identified above, concentration and distortions in "upstream" markets can harm consumers as well. In fact, with cable, this is exactly what's happening and increased costs that cable companies themselves have to pay are responsible in no small part for the increasing bills that consumers end up paying.

One problem is the broken retransmission consent system. The law gives the power to decide how much cable systems should pay to carry broadcast content, not to the creators and copyright holders of that content, but to local broadcast stations. Cable systems can't negotiate with national networks directly or find other options to carry this programming, which they used to get for free. Cable systems pay ever-higher retransmission fees and this leads to higher prices to viewers.

But there's another problem that a lawsuit by Cablevision against Viacom highlights. Large content companies like Viacom and Disney package their channels in such a way that to get access to popular ones like Comedy Central and ESPN companies like Cablevision also have to buy less popular ones like Palladia--and include them as part of their most basic packages. This raises the rates consumers pay and makes it that much less likely that systems will move in a more à la carte direction. They can do this because increasing consolidation in the media gives them significant leverage against distributors. An infographic by the Frugal Dad shows how concentrated our media landscape has become--while 50 companies used to produce 90% of the media people consume, now only 6 do. (The chart's biggest flaw is that the market has gotten even worse since it was made, with Comcast combining with NBC/Universal.)

Markets that are not functioning properly or are not sufficiently competitive can lead to consumers paying higher prices even when they should be trending downward. While it's right to expect better of the cable industry itself, increasing program costs are a problem as well. In addition to voting with their wallets and refusing to pay outrageous rates, consumers should push policymakers to take steps that increase competition in the supply of television programming as well as in its distribution.

This article was originally published on Public Knowledge. Republished under a Creative Commons license.

(AP Photo)

John Bergmayer
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