FCC Says Price of “Expanded Basic” TV up 5.4%

Mari Silbey —  August 14, 2012 — 24 Comments

The FCC yesterday released its latest pricing data on pay-TV services. In the twelve months leading up to January 1, 2011, the average cost for “expanded basic” service increased 5.4% across the country to $57.46 per month. The price for expanded basic service is defined as “the combined price of basic service and the most subscribed cable programming service tier excluding taxes, fees and equipment.” Oddly, however, the FCC also points out that average costs increased slightly more in competitive communities than they did in non-competitive communities. The difference was 5.7% to an average monthly cost of $58.47 in competitive communities versus 5.2% to an average monthly cost of $56.82 in non-competitive communities.

The findings here are highly counter-intuitive. Why would pay-TV service cost more in communities with reasonable service provider competition?

There’s no simple answer to that question, but there are a few critical things to point out about the FCC data. First, the FCC isn’t including equipment fees in these numbers. Equipment fees went up 3.7% in competitive regions during the same twelve months, while they went up at a higher rate of 5.4% in non-competitive areas. Those fees are, oddly, still slightly slower in non-competitive communities ($7.05 per month versus $7.22 per month), but the gap is closing, and the trend suggests that equipment costs could offset other rate differences.

Second, I would bet that the competitive regions surveyed in the FCC’s study are metropolitan areas where cost of living is higher than average – thus the ratio to cost of living may paint a different picture than the raw data suggests. (More expensive cities have more expensive services.) I don’t know this, but it’s a reasonable guess given that competition tends to show up where populations are densest.

As an aside, the FCC does note that while TV service prices went up 5.4% in the twelve months leading up to January 1, 2011, the Consumer Price Index only increased by 1.6%. (The numbers were much closer – 3.7% and 2.5% respectively – the year before) So pay-TV services are eating up a larger chunk of the household budget.

Third and finally, while costs were higher in competitive communities overall, incumbent cable operators charged 6.2% less on average in these regions. Satellite providers charged 5% more, which is what accounts for the difference. So it appears that competition at the very least has an effect on cable TV prices, if not the cost of satellite TV service.

Bottom line: the cost of TV service is rising significantly year over year. The data here would seem to suggest that greater competition doesn’t help this trend, but I think the data is somewhat misleading. There is also no accounting here for alternative TV services, which I expect we’ll continue to see more of. It’s hard to imagine that they won’t have an impact both on prices, and on subscriber numbers.

One final note, the FCC lists the average cost of expanded basic TV service as $22.35 back in 1995. It almost makes me wish I could go back to high school. That, and gas prices at 99 cents a gallon.

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24 responses to FCC Says Price of “Expanded Basic” TV up 5.4%

  1. “One final note, the FCC lists the average cost of expanded basic TV service as $22.35 back in 1995.”

    Well, if we inflation adjust that 1995 number, it works out to be about $35 in 2012 dollars.

    And, of course, we’ve more than tripled the pixels and bit-rate since 1995.

    So, if we value the PQ, current cable subs are actually a bargain compared to 1995. Also, there is the DVR, which adds immense value to a cable sub.

    (I know I was perfectly happy to intermittently cancel my cable in the ’90′s and early ’00′s and spend the saved money on disc rental and purchase, whereas today, I see cable as a great value that I’d never even consider canceling. If money becomes an issue, I’d cancel electricity and keep cable.)

    “It almost makes me wish I could go back to high school.”

    Anyone who says that in any context whatsoever is sorta weird.

  2. Chucky- I don’t really. Really I don’t. High school = blech.

    As for the PQ argument, it just isn’t that important to me. Yeah I like high-def, but I’m not a fanatic. And I am perfectly happy to be a mid-to-late adopter of higher PQ options.

    The FCC however does talk about the cost per channel of cable bundles. I decided not to go into that argument because of the ridiculous channels on offer. Analysis there becomes subjective.

  3. If we’re discussing PQ, then we should also mention how certain providers still charge extra for “HD” … as far as I know.

    Regarding high school, I mostly enjoyed my experience and have many fond memories. Although I skipped out on my 20th reunion – I keep in touch with the folks I want and the rest I don’t really have much in common with or things to discuss. But, damn, am I old. ;)

  4. “Regarding high school, I mostly enjoyed my experience and have many fond memories.”

    Perfectly normal selective nostalgia is different than actually wishing you could go back.

    If the latter, I still maintain: sorta weird.

    (College, OTOH, I might well take that deal.)

  5. Chucky,

    Agree with the comment regarding going back to high school. In fact, there really isn’t any period I would want to go back to. While they were all good, life is great now…no need to go back.

    Regarding electricity and cable, wouldn’t you need the first to make utilizing the second possible?

  6. “Regarding electricity and cable, wouldn’t you need the first to make utilizing the second possible?”

    I may be weak on some of the details here, but I think Firewire, USB, and Thunderbolt all carry power, so I should be good to go off the grid as long as my cable sub is in proper working order.

    “life is great now…no need to go back.”

    No doubt. But if Mephistopheles showed up and offered 24 years of college daze, I’d have to at least seriously consider the contract with my lawyer.

    High school, OTOH, I would reject out of hand, even though I can conjure some wonderful memories out of those years. No need to bring in the lawyers on that one.

  7. Yeah, I don’t need to go back to high school but I’d probably agree to another visit go around of my early college years… an adult (sort of, not really) with freedom (from parental oversight) yet limited concerns (like mortgage, health, etc).

  8. Back on point, I think the cost of Pay TV rising far faster than inflation is what will eventually kill the golden goose. I assume this has to do with media companies bundling and negotiating for multiple channels together, so that in order to offer A&E, a company like Dish has to pay up for three other channels (We, IFC, Sundance) that most people probably don’t even notice are there (yes I like Portlandia too, but seriously). Or the well-chronicled rising cost of sports channels like ESPN that are bundled into the cost of cable for everyone, even if you don’t watch sports. Etc.

    At some point this is going to come to a head. Maybe the government will force the unbundling of channels. Or maybe the rise of internet TV services among young people will force it, but there will come a day when this approach doesn’t work anymore.

  9. Agreed. At root to the rising cost to the subscriber for services is the rising PROGRAMMING COSTS for MVPD’s. Ironically the MVPD’s have heard and felt the sting of subscribers complaints of rising monthly bills that surpass inflation, and who really would, I believe, like to price LOWER to be more competitive, reduce churn, and have the headroom for subscribers to order more services that make the MVPD’s more money such as PPV, On Demand and even Premium movie channels, and, of course, the equipment and service fees being a 100% keeper for the MVPD to make up the hit on programming costs.

    First, and for a long, long time only, Charles Ergen, then Brian Roberts, and now really come lately, but surprisingly loudly–sounding like Ergen–Michael White have all stated that programming costs are their biggest burden, problem, and THREAT to their business, and the number one issue they plant to address.

    When one hears Les Moonves tell shareholders that current carriage rights undervalue their worth and that CBS sees future payments for carriage rights for it’s stations (O&O’s, but also cuing the affiliates go for it, too) will be their primary source of increased revenue and growth for the media giant (given its loss share of audience of the years), carriage rights will be used to make up the difference and more, I think we all know who to REALLY be angry with when our cable and satellite bills go up. And yes, the “you take and pay for our 6 other crap channels if you want our ONE gold standard channel or you get nothin’” requirements from the non-broadcasters only adds to the rocket rising subscription prices the broadcasters plan on fueling.

    The reason the pay-TV bill was only $23.00 when some folks were in high school is because we only got 40 channels. Now we get 240 channels (some people over 300), mostly crap channels that were forced upon the MVPD and the consumer, and we pay for it. There are MORE channels on the bottom tier than EVER, another requirement of many agreements for carriage, to be placed at the prized bottom tier, that forces everyone to pay for most of the junk, rather than having those who wish to have more crap channels pay for it at the higher tiers, or even A la Carte, and it is the channels who oppose that the most, not necessarily the MVPD’s, and Dish’s Charles Ergen has been the LONE supporter of A la Carte from DAY ONE back in 1996.

    This is why we don’t see the expected control on prices the free market should provide in those “provider competition” areas. Can you believe it? The content providers greed is so strong that it overwhelms the key market force of competition, and we don’t have that force, we get the run away pricing we see today for pay-TV.

    Ideally (perhaps a violation of free market itself, however), each MVPD should be allowed to pick and choose which INDIVIDUAL channels it wants to offer and at which tier. Then we would see some real variety among MVPD’s offerings and even a NON-sports service with lower prices serving the millions who don’t watch sports, but would realize a savings because of it while allowing those who would die without ESPN or Regional Nets to pay for the content they want without increasing everyone else’s bill. But that’s not likely to happen even when your great, great, grandchildren are in high school.

  10. “At some point this is going to come to a head. Maybe the government will force the unbundling of channels. Or maybe the rise of internet TV services among young people will force it, but there will come a day when this approach doesn’t work anymore.”

    The Feds mandating a-la-carte pricing would certainly have the force of law, but I actually think that would raise average prices, not cut them. Not to mention that I have trouble seeing the Feds ever doing that.

    At some point, this may come to a head. But I don’t see that point on the horizon, or even over the horizon. I continue to assert that cable subs are excellent value for the consumer, better value than in the ’90′s, and I think that equation will keep the status quo in place for the foreseeable future.

  11. Chucky -
    The notion that the “value” is better than the 90′s on a per channel cost, etc is worth noting but you need to consider the sticker shock factor. People are opening their cable bills and seeing they type of numbers that can’t be ignored.

    I pay less than $20/month for SiriusXM and think it’s a little salty but can blow it off.

    When you pay close to $100/month for anything it can make you pause if you are on a tight budget.

    The college tuition and cable bill bubble – which will pop first?

  12. “When you pay close to $100/month for anything it can make you pause if you are on a tight budget.”

    Of course. It’s just that folks seem to really like teevee.

    And what’s the alternative to a cable sub if you want teevee? You can get internet alone from your MSO, which is then going to run you more than it would’ve as part of a double/triple play bundle.

    And then you can spend for some combination of subscription and a-la-carte video offerings, hope you don’t run into the inevitable bandwidth caps that’ll come into play if folks ever start to do this en masse, and see if you’re spending any less than you would spend for a cable sub as part of a bundle package.

    My basic point here is that both the MSO’s and the content companies, (some of which are cross-owned), like the current model very much, and will fight like hell to maintain it. And, as stated, folks like teevee, and are seemingly willing to pay for it.

    A smartphone for one runs more per month than an ‘Expanded Basic’ cable sub for the whole family. Stuff with pricing power is expensive. Individual budgeting all depends on what folks value.

  13. I like TV as well, but switched to over-the-air (best HD signal for broadcast channels) when I bought my first HDTV nearly 5 years ago.

    With my Tivo I can buy most “cable” shows via Amazon Video, commercial-free, as well.

    As for sports, the two college games on Saturday and two pro games on Sunday are fine for me for football (I’d buy mlb.tv via the Roku were I a baseball nut)

  14. @Chucky,

    Well one thing I expected to happen more than it has is that Premium channels like HBO, Showtime, Cinemax, Encore, Starz would start to lose subscribers. As their general cable bill goes up, and consumers have alternate ways (VOD, DVR) to fill their viewing hours, I figured people would start to drop these premium channels. I mean I pay $20/month for HBO and don’t consider that acceptable (but hey, the wife does) given that I could hit up iTunes @$5 per for a movie @on the rare evening when we’re still awake and have the time to watch a movie (we have a 19 month old).

    Yet I think HBO added 7 million subscribers (93 to 100M) in the last year, suggesting I’m clearly not right about this. I’m pretty sure Showtime has been growing as well, presumably on the strength of their original series. Not sure about the others…

  15. “I mean I pay $20/month for HBO and don’t consider that acceptable (but hey, the wife does)”

    I’m actually of the opinion that a basic cable sub is a bargain, but that HBO in particular is a super-bargain.

    In fact, if we absent my NBA fetish from the equation, I value HBO easily more than the entire universe of the multicast ex-HBO. I do not exaggerate here.

    But that’s just me. The wife is different.

    “HBO, Showtime, Cinemax, Encore, Starz … I figured people would start to drop these premium channels”

    Original programming is really important, and that’s why HBO’s enormous lead in building a top-notch full-specturm studio has lead to significant differentiation and pricing power.

    But yes, the value of non-HBO premiums has become somewhat less compelling to me. Though they’re still reasonably priced via MSO bundling stratagems, and channels like HDNET Movies and MGM HD are still compelling to me, TiVo Amazon a-la-carte VOD does cry out to me for a reallocation of budget from non-HBO premiums to that.

    —–

    “I like TV as well, but switched to over-the-air (best HD signal for broadcast channels) when I bought my first HDTV nearly 5 years ago.”

    Some (many?) don’t have the option.

    In the last two places I’ve lived long-term, each very different in both region and size from the other, I did not have adequate OTA reception for that to be possible.

    And sports is a killer, if you’re into that. If you don’t need sports, and if you’ve got good OTA reception, then a broadcast/Amazon strategy does indeed become utterly viable, though there are some downsides.

  16. BREAKING! Must Credit Chucky! BREAKING!

    In a stunning anouncement, Apple has reached a deal this morning with almost all US major MSO’s to offer cable service via the magical new Apple TV Pro.

    All cable billing for the Apple TV Pro will take place through iTunes Billing, with Apple taking their god-given 30% tax off the top, and an ‘Expanded Basic’ sub priced at $220/month, and HBO at $80/month for consumers.

    Eddy Cue of Apple was quoted as saying, “We decided to way to get the MSO’s to get past their iTunes billing objections was to stuff their mouths with gold”.

    Brian Roberts, CEO of Comcast, was quoted as saying, “That Tim Cook really understands supply chains. This is a great deal for…” Roberts attempted to continue his statement, but collapsed in uncontrollable laughter.

    The magical Apple TV Pro will feature live cable TV, AirPlay, and Siri, but no DVR. Tim Cook was quoted as saying, “We think we have the cash to run saturation Sam Jackson and Zooey Deschanel ads to get folks beyond their irrational attachment to the DVR.”

    developing…

    (Future developments)

    Apple faithful stood overnight outside Apple Stores around the nation for the initial day of Apple TV Pro sales. With the Apple TV Pro at only $199, (with a mandatory AirPort MegaExtreme router at $499), excitement quickly built.

    While some critics noted that all the Sam Jackson and Zooey Deschanel ads were not enough to compensate for the lack of DVR functionality and quadrupling of cable sub prices, John Gruber ran a devastating series of blog posts deriding the poor font choices in current DVR’s that turned the tech press storm around.

    (One year later)

    After selling a fewer than expected 600,000 cable subs through it’s magical new Apple TV Pro, Apple took a one-time write-down leading to it’s first quarterly loss in over a decade.

    Eddy Cue and Tim Cook were murdered in the Apple cafeteria by irate Apple employees with underwater stock options. John Sculley was reintroduced as the once and future Apple CEO, and immediately announced deep Pepsi integration into all Apple products.

    With both Microsoft and Google using Apple’s missteps to solidly establish thier new products for both the living room and mobile spaces, Twitter expressed interest in buying Apple at its greatly reduced valuation. A Twitter spokesman said, “We don’t really want their tech, but we think we can convert their wonderful Apple Store real-estate into Twitter cafes. Also, we think that as a public service, we’d like to fix OS X and make it the best of breed computer OS for pro users again. We used to really like it ourselves.”

    ——

    Additional note: the Virginia voter registration deadline is coming up soon. Swing state voters who’ve recently moved should get on the ball ASAP.

  17. Chucky- this may be the best comment of all time. The John Gruber reference took me over the edge.

  18. “Chucky- this may be the best comment of all time. The John Gruber reference took me over the edge.”

    I’m very surprised that there hasn’t been more coverage of this. Newsrooms must be on vacation, I guess. Either that, or they just don’t want to credit me with the scoop.

    (And Gruber missed his true calling by being born too late and in the wrong country. He would’ve made a perfect Pravda writer in the Soviet days.)

  19. Chucky, read your blog email – I want to post this

  20. “Chucky, read your blog email – I want to post this”

    Posting it is absolutely fine by me.

    Just remember that the hologram of Steve-o they’ll use during the keynote is going to announce it as the “magical new Apple TV Pro”.

    If I were to re-write, which I don’t want to do, the one change I’d consider making is to add three words in this line: “(with a mandatory AirPort MegaExtreme router – It’s got electrolytes! – at $499)”. However, I will leave such decisions to your editorial discretion.

  21. Excellent, it’s up. Sadly, I had to sully the post with a satire label given the nature of things…

  22. “Excellent, it’s up.”

    Proper decision on your part on the italicizations.

  23. Glad I was able to contribute at least something small to your master work. :)

  24. “Glad I was able to contribute at least something small”

    It’s not just the italicizations. I’m surprised and impressed that you managed to get a pre-release photo of the box itself. Cupertino does try its best to keep those out of circulation.

    I’m guessing you had to mark it as “satire” to protect your sources for the photo…

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