According to Cut Cable Today, if cable prices increased at the same rate as greater inflation over the past 18 years, the average cable bill would be $35 per month for 165 channels. We all know that isn't the case: According to the Federal Communications Commission, as of December 2014 basic expanded cable costs nearly $67 per month, versus $22 in 1995. On an annualized basis, this package increased 5.9% per year, 156% higher than the 2.3% inflation the general economy has recorded.
Consumers typically blame their local cable companies -- Charter Communications (NASDAQ:CHTR), Time Warner Cable (NYSE:TWC), and the like -- for these large increases. The American Consumer Satisfaction Survey typically rates subscription TV and Internet service providers at the bottom of all industries. However, it's not cable companies that should be blamed, but rather the costs content creators are asking providers to bill subscribers for.
Among those costs are retransmission fees -- the costs affiliated networks pay broadcast networks to carry their signals. And if a report from SNL Kagan is correct, your cable bill will continue to climb.
SNL Kagan projections mean higher cable bills
According to SNL Kagan, broadcast retransmission fees are expected to increase nearly 100% over the next seven years, from $6.4 billion in 2015 to $11.6 billion in 2022. That's equal to an 8.9% increase per year, or 285% of the aforementioned 2.3% annualized inflation figure. In 2016, SNL Kagan expects retransmission fees to increase to $7.7 billion, a mind-boggling 20.3% increase over last year.
It should be noted that retransmission fees are still a minor part of most subscribers' cable bills. According to SNL Kagan, the average retransmission fee per channel is expected to rise from $1.40 this year to $2.21 in 2022. Considering there are only four major broadcast networks -- CBS, Fox, The Walt Disney Company's ABC, and Comcast's NBC -- you can see that retransmission fees are a small part of your cable bill.
Could broadcast TV be a steal?
Under today's SNL Kagan estimates, by 2019, its projected $10.1 billion in retransmission fees will represent approximately 19% of the expected amount paid to basic cable and regional sports networks. However, the Big Four have a higher viewing share (read: more viewers) than these other outlets. The other large fee that has driven increased cable bills is affiliate fees, the cousin of retransmission fees that are paid to cable networks.
The media, myself included, have written about affiliate fees because they're becoming a larger part of the average monthly bill. For example, SNL Kagan estimates that Disney's ESPN charges $7.04 per month for every subscriber, making this one channel more expensive than all four broadcast networks combined. Using both SNL Kagan's cost and Nielsen's total subscriber estimates, ESPN alone produces approximately $7.1 billion in affiliate fees annually, less than the $7.7 billion in total retransmission fees the firm estimates as fewer subscribers pay for the sports network.
Is slower growth on the horizon?
There may be hope on the horizon for slower growth for content costs. Recently, there's been a rash of consolidation among cable delivery companies, strengthening their hands during future negotiations. After AT&T purchased DirecTV, Charter Communications eventually acquired Time Warner Cable. Additionally, Dutch company Altice NV has been gobbling up smaller U.S. players -- specifically, Suddenlink and Cablevision.
Already there's proof that consolidation is resulting in tougher negotiation stances. Last week, The New York Post reported that Univision filed a lawsuit against Charter Communications for using acquired Time Warner Cable's less expensive carriage deal. It's likely that consolidation will lead to lower-than-expected content costs than SNL Kagan estimates as future growth slows.
However, there's no guarantee that lower content costs will make their way to end consumers. In the aforementioned scenario, if Charter prevails, the company could simply pocket lower content costs. However, the subscription-TV industry is essentially a price-sensitive, commoditized business with heavy discounts to induce new subscribers. In the end, slower-growth content costs should result in cable bill growth rates closer to the rate of inflation, rather than the large increases subscribers are accustomed to.
One thing is for sure: Your cable bill is going to get more expensive. By how much is anybody's guess.
Jamal Carnette owns shares of AT&T. The Motley Fool owns shares of and recommends Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.