Considering their notorious reputation for hours-long service windows and plenty of other practices consumers hate, it comes as no surprise to most Americans that cable companies are among the most hated enterprises in the country.
In a recent survey by the American Customer Satisfaction Index, Time Warner Cable (NYSE: TWC) and Comcast (CMCSA 0.69%) came in dead last with a score of 56 and 57, respectively, on a scale of 100.
The ASCI summed up the poor ratings, explaining, "High prices, poor reliability, and declining customer service are to blame for low customer satisfaction with pay TV services. The cost of subscription TV has been rising 6% per year on average -- four times the rate of inflation."
An FCC study showed that cable prices increased by a compound annual rate of 6.1% from 1995-2013. The average American now pays $64.41 a month for expanded basic cable, the most popular package in the country, compared to just $22 a month in 1995.
Of course programming costs have grown over time, helping to push up the price as the number of channels in the cable universe has ballooned, but Americans don't actually watch most of them. The average household receives 189 channels with their subscription package, but only uses about 17 of them.
In the information age, technology costs have soared as Americans now readily pay hundreds of dollars a month for cell phones, data plans, and broadband access -- expenses that didn't exist 10 or 20 years ago. And despite the public's ire, cable and satellite TV have been surprisingly sticky even as streaming options like Netflix (NFLX +3.32%) Amazon.com (AMZN +3.51%) seem to be getting better all the time.
In fact, very few Americans have actually "cut the cord," despite the media coverage surrounding the phenomenon. In 2014, pay-TV subscriptions fell by only 125,000, or about 0.1%, even though actual TV viewing is down about 10% in recent quarters.
Will the country finally cut the cord?
Over-the-top TV options are expanding every day, it seems. Apple (AAPL +2.77%), earlier this week, announced its intention to launch a limited subscription package with about 25 channels at a cost of $30 to $40 a year. Time Warner's (TWX +0.00%) HBO also made public its plans for an over-the-top service called HBO Now to launch in April exclusively through Apple devices at a price of $15 a month.
The upshot for consumers seems to be that options and competition for home entertainment packages are rapidly expanding, but costs may not come down for families or those who wish to have multiple services and a variety of programming at their disposal. For instance, analysts have speculated that a stand-alone package of ESPN's channels could cost as much as $30/month.
Why cable prices will continue to go up
Though competition can make prices come down in an industry, cable providers are unlikely to flinch at the onslaught of streaming-based newcomers. Comcast and Time Warner Cable have spent the last year trying to get a merger approved, which would presumably boost profits, and the industry has already seen some other attempts at consolidation recently in the form of AT&T and DirectTV's proposed merger.
In fact, mergers and acquisitions have been at the center of the industry playbook throughout its history, as the largest companies in the industry have grown predominantly by acquisition. Twenty years ago, there were dozens of regional providers, but today, only a handful remain. As the big players begin to feel more threatened, more consolidation is likely.
Another major reason cable prices will continue to go up, however, is that declining businesses often raise prices, not lower them, so they can squeeze more profit out of a smaller customer base. In the U.K., average prices for a daily newspaper have doubled in the last 10 years, and the circulation numbers of individual papers has been largely unaffected by the extent of the price increases. Cover prices for many dailies in the U.S., such as The Washington Post, have also doubled or tripled in this time.
Newspapers have been able to raise prices like this because they still have a core audience willing to pay more for their product instead of finding a free alternative online. Similarly, e-books have not had any dramatic effect on lowering the price of physical books.
Cable companies will likely encounter a similar response from consumers, which means Americans looking to free themselves from those ever-increasing monthly bills will just have to cut the cord themselves.
