Do you hate your cable company? Well, you're not alone: Matter of fact, the two most hated companies -- Comcast and Time Warner Cable -- are both cable providers. And while there's a lot to dislike, you can't entirely blame them for rampant price increases.
Right now, cable companies provide a host of cable packages at different price points with pre-bundled channels. The issue is nobody's watching the majority of these channels: A recent Nielsen study reported that on average U.S. homes receive nearly 190 channels but only watch 17.5; that means the average U.S. home utilizes less than 10% of the channels it is delivered.
However, each cable channel needs to be paid by cable providers -- and by association, cable customers who are burdened with the monthly tab -- via affiliate fees. Pay-TV providers are stuck in a situation balancing the costs of these channels with customers wary of fee increases. And not all channels are created equal: Here are the channels responsible for jacking up your cable bill.
Don't like sports? You should be outraged!
Leading the list is Disney's (NYSE:DIS) ESPN channel. And while many casual observers associate the company with its namesake "land and world" parks and theme resorts, astute investors know that, at its heart, Disney is now a media company. Former CEO Michael Eisner provided significant value to investors by buying ABC in 1995, perhaps unwittingly, because ABC bought ESPN a decade prior.
ESPN is inherently valuable to cable providers for two reasons: First, over the last two decades Americans have had an all-out craze for anything sporting related and the nexus of sport is ESPN's flagship program, Sportscenter. Secondly, and most importantly, sports and live events are a powerful trend against cord cutting. Therefore, ESPN is a defense of sorts -- a moat -- against the trend of cord cutting.
And how much do cable subscribers pay for that a month -- regardless of whether they watch the network or not? Well, according to data from media-research firm SNL Kagan, ESPN receives $6.04 per subscriber every month from your cable network; the median cost per channel is $0.14 per month. However, many cable companies bundle that with ESPN2, costing subscribers an additional $0.74 per month.
Disney also owns the third most-expensive channel as well: A sparsely carried 3D channel, 3net, that costs those who have it $1.37 per month.
Time Warner Cable's former parent has become a dependent
A distant second on the list is Time Warner's (NYSE:TWX) TNT network. The falloff between ESPN and TNT is rather shocking; by costing the average subscriber $1.48 per month, TNT is only 25% the cost of the sports channel. However, it is the second most expensive channel on cable.
However, Time Warner receives more than a mere dollar and a half each month from your cable bill. Through its Turner Broadcasting system division named for media mogul Ted Turner, their brands include the aforementioned TNT, CNN, Headline News, and the Cartoon Network, among others. In addition, the company has another top-10 station when it comes to monthly cost per subscriber, TBS. By coming in at $0.72 per month, the channel comes in ninth after ESPN2.
Should this continue?
While we like to beat up on our cable providers, and they make it rather easy to do, horrible customer service and increasing bills are actually a symptom of a greater problem -- the pay-TV model is unsustainable as is. Consumers want a choice of channels and to pay for only what they use, not more services and higher costs. Even if you watch the channels listed above, there are probably dozens you don't watch and still pay for.
Without adapting, these providers will continue to provide poor service and customers will continue to abandon pay-TV -- aka "cutting the cord." Matter of fact, the percentage of households without pay-TV has nearly doubled in a mere three years. As far as investors are concerned, this is a major trend you must plan for accordingly. Wouldn't it be nice to make money while your cable company struggles?