The cable industry hasn't learned its lesson, or observed what's happened to the music and newspaper businesses. Companies including Comcast (NASDAQ:CMCSA), Charter Communications (NASDAQ:CHTR), and Time Warner Cable (NYSE:TWC) often still operate as if they don't have competition. They raise rates steadily, provide lousy customer service, and generally act as they always have.
This is becoming increasingly foolish given that consumers now have options. It's possible to cut the cord and drop cable, add an HDTV antenna, as well as one or two streaming-service subscriptions, and still have a wide array of entertainment choices. You won't have quite the same amount of options as cable brings, but you will get access to most top shows (though not always right when they air), tons of movies, streaming originals, and even some sports.
Big cable may still operate like its the 1980s, but it's most certainly not, and acting like a monopoly could send the industry into a pronounced tailspin. Of course, old habits die hard, and even with cord-cutting -- which cost the industry 650,000 subscribers in 2015, up from a 125,000 drop the previous year, according to Leichtman Research Group (LRG) -- prices are expected to rise again in 2016.
How much is your bill going to rise?
Even though the cable industry should be looking at ways to lower costs to keep cord-cutters from leaving, bills should increase by an average of 3%-4% in 2016, according to Evercore ISI Group media analysts David Joyce and Vijay Jayant. That's actually a lower increase than the 8%-10% rates have gone up according to Evercore ISI research cited by Multichannel News. Both Comcast and Time Warner Cable have already announced price hikes.
Comcast, the nation's largest traditional cable provider, has said that its rates will jump by an average of 3.9%, NBCNews.com reported. In addition to that, the company will raise its already controversial "broadcast TV fee" by 66% -- from $3 a month to $5 a month.
TWC prices will raise prices for its Starter TV and Standard TV by $4.00 (20%) and $2.00 (2%), respectively, according to MultiChannel news. The company, which is in the process of trying to merge with Charter, is also raising "most of its equipment and service fees," in addition to raising rates for some premium channels.
Prices are also going up for DirecTV customers by $1.00-$9.00 per month, and will rise by $2.00-$8.00 for DISH Network subscribers, according to Joyce and Jayant. AT&T, which now owns DirecTV, will also raise rates $2.00-$4.00 per month, and Verizon is expected to increase prices similar to the low-end of that scale, the analysts reported.
Charter has not announced any 2016 increases, which makes sense because the company is trying to curry favor with the public and the Federal Communications Commission while it seeks approval to buy Time Warner Cable.
Why are cable companies raising rates?
The cable companies blame the increased rates on the rising prices they are paying for programming. That's a valid concern given that programming costs -- especially for top-tier channels -- have inched up regularly.
This puts the various pay-television providers in an awkward place with consumers, where they must raise rates in order to maintain their profit margins, even though doing so will likely force some consumers to cut the cord. It's a balancing act that one of the major players attempted to explain on its website.
"We understand that getting maximum value is a top priority, which is why we work diligently to keep costs under control. However, due to higher costs of programming, an adjustment in the price of our programming packages is necessary," DirecTV said in a letter to its subscribers on its site.
It can't go on forever
When cable was the only game in town, and many markets were served by only one provider, regular rate increases were simply how the business operated. Now, with consumers being able to cut the cord and leave cable altogether, something has to change. But the concessions can't come from the cable industry alone. The networks, be they traditional broadcast entities or cable channels, need to share the pain.
Raising cable rates will continue to shrink the cable universe, which will result in the various networks losing carriage-fee revenue. The only way to prevent that is to reach a compromise where the cable and satellite providers pay less for programming, and pass that savings onto consumers. That's the only long-term way that cable could stop raising -- and conceivably lower -- rates, while still offering the expansive packages it does now.
Sadly, at least for cable company shareholders, the industry has seemed willing to ignore cord-cutting as a threat. That could prove to be a big mistake, and the 2016 rate increase could be the domino falling that pushes consumers to other options. A big cord-cutting exodus might get the industry's attention, but by then, it will be too late to change.
Daniel Kline has no position in any stocks mentioned. He refuses to cut the cord even though it makes total sense. The Motley Fool recommends Verizon Communications. 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.