Sympathy for the Cable Guys: Don’t Blame Industry For Rising Prices, Analyst Says
Just about everybody hates their cable company and there’s legitimate reasons why — nobody likes sitting around all day waiting for the cable guy to show up or paying for hundreds of channels they never watch.
So it may sound like sympathy for the devil…but there’s actually a case to be made for why you should feel bad for your cable company.
Tony Wible, director of media research at Janney Montgomery Scott, says even with ever rising cable bills – another source of customer consternation — the industry as we know it may not survive. The cable companies are victims of “massive pressure” on two fronts: the skyrocketing price of sports programming and broadcast networks asking “exorbitant prices” for content they used to provide for free.
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Content prices are rising, in general, 10% per year and “if they go to where networks want them to be, you’d have to see a massive increase in you cable bill – it would look like an auto payment,” Wible says.
These trends have been on display recently with the contentious negotiations between Time Warner Cable (TWC) and CBS (CBS) and, now, Disney (DIS) and Dish Network (DISH).
So what does this mean for consumers? For the next few years, expect higher prices for “basic” cable service.
“Cable bills are only going higher,” Wible says, but cable companies are constrained by the government as to how much they can raise them.
In the not-too-distant future, Wible sees the current “ecosystem” collapsing because cable companies can’t maintain profit margins if the price of their ‘raw materials’ — content — keeps rising faster then they’re legally allowed to raise prices. In addition, cable companies are facing increased competition from online outlets, most notably Netflix (NFLX) and Hulu, as well as Google (GOOG) and Yahoo (YHOO), The Daily Ticker's parent.
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Ultimately, Wible believes the cable industry will focus on a move to a “usage-based” model as the cell phone industry has done. Consumers would have to pay networks and other content distributors directly, the same way they pay for apps and online music today, and heavy users would have to pay more.
“The government wants broadband to be made available in low income homes. The only way to do that is bring down prices,” he says. And the only way to lower prices is to give the cable companies an economic incentive to do so.
"It's hard to pinpoint what could be the straw to break the camel’s back" but there's a "massive game-change" coming for the cable industry, Wible says.
Whether it changes or hardens people's perception of the industry remains to be seen.
Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com
