Have you ever wondered why your Comcast (CMCSA +0.65%) 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.
