Your Cable Bill: Can You Handle the Truth?

Have you ever wondered why your Comcast (NASDAQ: CMCSA  ) bill is so outrageous? If so, then you're in good company.

Google the phrase "cable bill" and you'll uncover a cottage industry of complaints and advice about how to lower your bill or break up with your cable company. A U.S. senator has even gone so far as to establish a website for frustrated customers to vent about their cable or satellite providers.

But does all of this griping, which I'm guilty of as well, miss the point? What if companies like Comcast don't have a choice but to charge so much? To put it differently, do high cable bills simply follow from the fact that it's expensive to own and operate a cable company?

Are you paying too much for cable?
With these questions in mind, I spent a recent morning digging into Comcast's financial documents. And what I found might surprise you.

The graphic below illustrates how the proceeds of a hypothetical $100 cable bill course through the veins of Comcast's cable communications segment. As you can see, only a relatively small portion translates into earnings -- $15.84, to be precise. The rest is consumed by operating expenses ($58.88), depreciation and amortization ($12.02), interest expense ($4.42), and corporate income taxes ($8.84).

Of course, a nearly 16% profit margin is nothing to complain about. However, once Comcast's other operating divisions are factored into the analysis, its consolidated profit margin shrinks to 10.5%, according to data from YCharts.com. This figure puts Comcast firmly in the middle of the S&P 500, which had a median profit margin of 10.3% in the latest fiscal year.

The same is true when you look at other measures of profitability. Take return on equity, the amount of earnings expressed as a percentage of book value. Here, too, Comcast turns in a pedestrian performance. Its ROE last year was 13.6%, compared to a median of 14.5% on the S&P 500.

One area where Comcast does distinguish itself from the pack is executive compensation. And not in a good way. An analysis by the Associated Press and executive research firm Equilar ranked Comcast CEO Brian Roberts as the 10th highest paid chief executive in the country last year, earning an estimated $31.4 million.

To be fair, he's far from the only media executive to grace the list last year. A total of six out of the top 10 hail from the same industry. In addition to Roberts, CBS's Leslie Moonves was second, Viacom's Philippe Dauman was fifth, Disney's Robert Iger was seventh, Discovery Communications' David Zaslav was eighth, and Time Warner's Jeffrey Bewkes was ninth.

It's hard to say what's behind this trend. But regardless of the answer, Roberts' pay is a drop in the bucket in the whole scheme of things. Even reducing it by $20 million and passing on the savings to cable subscribers would only decrease the average bill by about $1.

Not the answer you were looking for
I know this probably isn't the answer you were expecting, but it seems relatively clear that our perception of being exploited by Comcast and other cable companies may just be that -- a perception. These types of operations require copious amounts of infrastructure and capital, neither of which comes free of charge.

This isn't to say that Comcast isn't at least partially responsible for being one of the least-liked companies in America. But that reputation has less to do with charging too much for its services and more to do with its strategy of baiting customers into low introductory rates that are then quietly raised six months down the road.

That's a problem. And it's probably not the most respectable way to conduct business. However, this doesn't change the fact that your cable bill is high because of the simple fact that the service costs a lot to provide.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Read/Post Comments (14) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 22, 2014, at 10:04 AM, yuckfu wrote:

    cable is a utility like electricity,water gas etc,i pay asbout 50bucks for electricity,30 for water,maybe 10 for refuse service,and cable wants at least 100 bucks,no way no how,does anyone think cable is more important than electricity or that its worth more if so just try doing without electricity or water for a few days.

  • Report this Comment On July 22, 2014, at 1:01 PM, orangepeels wrote:

    I guess Comcast is just buying TWC on a credit card.

  • Report this Comment On July 22, 2014, at 1:36 PM, JMacKay wrote:

    For those who can't post a comment, use Internet Explorer in "Compatibility View." If you look to the immediate right of the address bar (the one with the "http://" and a bunch of other stuff after it) and click on what looks like a torn sheet of paper. You will then be able to post a comment.

  • Report this Comment On July 22, 2014, at 1:44 PM, JMacKay wrote:

    I think the reason we think it costs too much is what we get for our money. The lack of a la carte options positions customers with $100 cable bills for the four channels they watch. To get all four of those channels, I'm force-fed the other 116 (or whatever) which I never watch. If everyone wants a la carte - and I don't need to take a survey to know they do - then how do the cable companies get away with providing only bundles? Lack of competition. The gentleman's agreement the cable providers have to stay in their own territories and not step on anyone else's turf is the single competition-limiting factor causing the lack of options and stagnation of service within the industry. They can force you to take what you don't want, charge you for what you don't want, and treat you like a sack, and there is nothing you can do about it. And don't even think about cutting the cord and switching to Netflix... they'll be sure you can't do that either.

  • Report this Comment On July 22, 2014, at 1:53 PM, TMFBlacknGold wrote:

    What if cable companies are inefficient in managing their operating expenses? Perhaps that's the problem.

    Maxxwell

  • Report this Comment On July 23, 2014, at 10:53 AM, anash91 wrote:

    I really do think Cable companies are terrible at managing expenses. Maxxwell, I think that's probably the best thing to bring up. I only pay for internet, and comcast is testing a new pay per use. That will make me cut the cord with them if they introduce it where I am since I am on such a limited budget if I want to invest anything

  • Report this Comment On July 23, 2014, at 11:24 AM, axz055 wrote:

    The lack of a la carte pricing isn't just an issue with the cable companies, it's also an issue with the media companies that produce the channels. They need to make all their minor channels profitable, so they require the cable companies to buy bundles with all their channels.

    The cable company wants MTV and Comedy Central? Sure, as long as they also get MTV2, MTVU, VH1 Classic, CMT, Spike, BET, and half a dozen other Viacom channels.

  • Report this Comment On July 23, 2014, at 11:58 AM, gio1950 wrote:

    I would never pay for commercials. This has got to be one of the biggest scams in the world.

  • Report this Comment On July 25, 2014, at 11:01 AM, ashpkt wrote:

    "But that reputation has less to do with charging too much for its services and more to do with its strategy of baiting customers into low introductory rates that are then quietly raised six months down the road."

    That's pretty rich coming from Fool staff. How much is that introductory rate to Stock Advisor?

    ...just saying

  • Report this Comment On July 25, 2014, at 12:05 PM, philapa13 wrote:

    Comcast's problem is their dreadful customer service. If their customer service were better, people would be more tolerant of their cable bill.

  • Report this Comment On July 25, 2014, at 1:45 PM, Phenom1997 wrote:

    Just cut the cord and let cable TV go. Most of what is on tv is garbage and you can find a lot of great hobbies for a fraction of the cost to fill that void. The first few weeks w/o cable is tough but once you get used to it you will never look back.

  • Report this Comment On July 25, 2014, at 1:58 PM, Bilejones wrote:

    For $20 million to give an average savings of $1 per bill, Comcast would have to have a subscriber base of just 1.67 million which seems far too low.

  • Report this Comment On July 25, 2014, at 2:28 PM, swiing wrote:

    The real story is how much the content providers are charging: ESPN, CBS et al, CNN, Fox, and regional sports networks. I know ESPN alone adds $6.00 to your cable bill. They are also the ones limiting a la carte by contractually requiring carry on the lowest tier of service.

  • Report this Comment On July 25, 2014, at 9:10 PM, Bilejones wrote:

    For $20 million to give an average savings of $1 per bill, Comcast would have to have a subscriber base of just 1.67 million which seems far too low.

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