If you were to look at the healthy bottom lines of the country’s largest cable companies, you’d think that this talk of cord-cutting is way overblown. However, the current reality of programming costs rising faster than subscription fees is making it difficult for TV divisions to keep up with other revenue sources for cable companies.
Let’s break down the numbers. For a limited selection of channels such as local, government, and public access channels, the largest U.S. cable company (#1) charges subscribers $11-$20. For the second largest cable company (#2), subscribers seeking a basic package are set back $14-$18 a month. Basic cable costs subscribers $12-$17 a month with the third largest cable company (#3). All three major cable companies charge roughly $50-$60 for a first tier starter package.
Costs among cable providers really start to differ as you get to the upper tiers of package offerings. Excluding premium channels such as HBO, Showtime, and Cinemax, #1 subscribers can pay anywhere from $100 to $127 a month for a Premier package, depending on the region. For subscribers with provider #3, the top tier hits the ceiling at a more modest $68-$75.
If you’ve ever opened your cable bill, you know that it can be a bit more expensive than this. Want to make the most of your high definition television? An HD cable box will run you an extra $6-$8 in HDTV service costs. If you want a high definition digital video recorder, that will be $10-$16 per month. Digital service in extra rooms runs another $7-$10 per room. Service instillation and home visits can run another $20-$40 each.
This sounds like a lot of money, but cable operators are facing higher costs to secure the rights to the channels they provide. Just in the first quarter, provider #2 paid $1 billion in programming costs. This is up eight percent from the previous year, and cable bills aren’t getting raised by equal amounts, so the cable companies are forced to make up the difference. Costs for the largest provider are up 9.6% per year; that’s $1.8 billion in just one quarter.
Now that you know about the high costs facing cable companies, it may not be a surprise that the television service is the least profitable of the big three products – internet, television, and telephone. Television divisions rely on selling more channels to subscribers in order to stay profitable. Customers wanting to add HBO may fork out an addition $15 a month, with $7 a month going straight to HBO. In 2009, $3.50 of each subscriber’s bill went straight to ESPN. Now, ESPN is estimated to command $4.69 of each cable bill. In fact, for every $10 that cable television companies receive, $4 goes towards expensive channels like MTV, CNN, and ESPN. One company has struggled with the National Football League who is asking for nearly 90 cents per subscriber per month, even in the football off-season.
We’ve been talking quite a bit about a lot of small numbers – $4 here, 90 cents there. To put it into perspective, let’s consider how much it would cost a cable company to give every New York City household standard cable. Currently, 51% of the 3,049,978 households in New York have cable. If the largest provider gave every household in New York free cable for one year, it would cost the company $73 million in programming costs, plus the cost of installation, cable boxes, and administrative costs. If some generous entertainment loving philanthropist offered to purchase standard cable television for everyone in NY, it would cost $180 million plus installation. If this philanthropist really wanted to treat his city and throw in top-tier packages and HBO, we could be talking $450 million. Anyone know the phone number for Michael Bloomberg’s accountant?
Cable television is big business, and it’s facing rising programming costs at the same time it is competing more directly with the internet. Are you surprised by the numbers?