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The Average American Pays This Amount For Cable, How Do You Compare?

By Jamal Carnette, CFA - Feb 1, 2015 at 8:42AM

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Do you pay more or less for pay-TV than the average American?

Source: Flickr user

In the past 70 years, it can be argued there's no product that's changed America quite like the television set. From an estimated 6,000 sets in use in 1946 to nearly three televisions per household now, television has grown from luxury to ubiquity in less than three generations. It is now estimated the average American over age two watches roughly five hours of television per day -- 34 hours per week.

The rise of cable television enabled this rapid growth. Initially designed to improve reception for homes unable to receive over-the-air signals, by a system of antennas and coaxial cable delivery, cable television later expanded to include new programming networks and services. As a result, both the number of subscribers and programming choices exploded. As a matter of fact, the broader subscription pay-TV market in the U.S. is estimated at more than 100 million with the average customer now having 189 channels .

But programming choices, quality, and subscriber counts aren't the only thing that's exploded -- so has the average cable bill. According to estimates from the NPD Group, this year the average subscription pay-TV customer will pay an astonishing $123 per month for pay-TV. NPD estimated that same figure was $86 in 2011, which indicates an increase of 9.4% annually between 2011 and 2015.

For perspective, total U.S. inflation as measured by the Consumer Price Index increased 1.6% annually during that period, leading many to question the sustainability of a business model that's charging subscribers roughly six times the rate of inflation annually.

Pity the poor pay-TV provider
In an ironic twist, pay-TV providers -- Comcast (CMCSA 0.67%), Time Warner Cable (NYSE: TWC), and DirecTV (DTV.DL), among others -- aren't the underlying cause for your exploding bill. Both the Federal Communications Commission and media-insights firm SNL Kagan point toward programming costs as the main reason for the increase. And that makes sense, as the costs of ESPN, TNT, and Fox News increase, your cable bill will increase to pay for sports, original programming, and political-focused punditry.

Lost in the thank you is the fact you'll be paying 50% more for the channel. Source: Dish

For example, Dish Network (DISH 1.56%) and Fox News recently settled a programming dispute that led to Fox News being removed from Dish's channel lineup. After a near-month hiatus, the dispute was resolved with Fox News receiving a 50% increase for the cost of content. Bringing in SNL Kagan's earlier estimates of Fox News averaging nearly $1 per subscriber monthly pre-dispute, eventually a $0.50 per month increase (plus Dish's profit margin) will need to be paid by subscribers. And that's only one channel out of nearly 200.

Want a friend in Washington? Get a dog
Adding more irony to the situation, one of the strongest moves that Comcast and Time Warner Cable have to combat content cost increases for subscribers may be denied due to prior poor subscriber treatment. The proposed Comcast-Time Warner Cable merger would create a massive entity boasting roughly one-third of all subscription TV subscribers. With that scale comes the ability to negotiate more effectively with channels to lower content costs or to slow its rapid growth.

The Stop Mega Comcast Coalition continues to pick up steam. Source: Stop Mega Comcast

However, due to years of perceived poor customer service, Comcast and Time Warner find themselves facing a tougher battle than expected with the L.A. Times no longer viewing the merger as "inevitable." The merger review period was recently paused for a second time by the FCC due to what FCC Media Bureau Chief William Lake called substantial and material errors.

Regardless of Washington's decision, customers are voting with their wallets
And while it is hard to know where the political winds of Washington will blow, many consumers are voting with their wallets. In 2013, the number of pay-TV subscribers actually fell as more are embracing streaming-based services like Netflix and Prime Video. Last year, Experian Marketing found 6.5% of U.S. households have cut the cord -- up from 4.5% in 2010.

And while it is important to note this trend is still small, it is increasing. Recently, Dish Network unveiled its Sling live-streaming service in an attempt to monetize this trend. One thing's for sure, if the industry thinks it can continue to raise prices at six times the rate of inflation, this trend of cord cutting will only continue.

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Netflix, Inc. Stock Quote
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DISH Network Corporation Stock Quote
DISH Network Corporation
$20.81 (1.56%) $0.32
Comcast Corporation Stock Quote
Comcast Corporation
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DIRECTV, LLC Stock Quote

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