How Much More Expensive Can TV Get?

Unlike its movie studio and publishing arm, Time Warner's television business is booming, bringing in $3.7 billion for the media giant, a 5 percent increase from the year before, all because you're paying more for cable. Time Warner, not to be confused with Time Warner Cable which Time Warner spun off in 2009, owns cable channels like CNN, TBS, TNT, and who could forget, HBO. In order to make up for its declining magazine biz and a film slate that didn't include Harry Potter, Time Warner has been charging more for cable and satellite providers to include its channels as a part of their bundles, following a pattern of rising TV costs, most notably with sports packages. Not wanting to eat the entirety of these rising costs, the cable companies, in turn, charge more for service. Time Warner Cable, for example, saw a 5.1 percent increase in programming costs, it reported in this quarter's earnings release, which pushed cable bills up: To keep up, over the last four years TWC has increased customer prices 16 percent. This cycle of price increases is nothing new. The pattern of higher programming and subscriptions costs has been underway for something like a decade—and still 103.5 million households pay up every month. But, signs show that some consumers have started to to reach a point where prices have gotten too high. 

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With subscriptions prices rising, it's no suprise that Time Warner Cable lost 129,000 subscribers. "We've been losing too many customers when their promotions expire," TWC chief operating officer Rob Marcus said during the earnings call. Meaning, once the deals for cheaper-than-usual cable end people cancel, a theme that doesn't just apply to TWC, either. Comcast lost 117,000 subscribers in its last reported quarter while Dish lost 19,000. And presumably more people would have cut their cords, if these companies weren't so open to negotiating customers threatening to leave. Still, those are tiny numbers compared to the total number of people who pay for TV and are an improvement over the subscriber losses a year before. But the industry has seen net customer losses for nine-straight years in a row.  

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And at the same time, the pay TV industry has been to raise prices, at a rate that more or less corresponded with the rate they're losing subscribers: television bills have been going up 6 percent a year, according to the NDP Group, to $86 in 2011. If the trend keeps up, NDP Group expects the average bill to reach $123 by 2015 and $200 by 2020, as their chart shows:

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In its earnings report on Wednesday afternoon, News Corp. exceeded analyst expectations with a $2.3 billion profit, in part because of the 13 percent increase in carriage fees it got from TV providers. Last quarter its cable channel segment made $1 billion in part because it more than doubled "retransmission consent revenues," meaning the fees it made from charging cable and satellite companies, as MediaDecoder's Brian Stelter explained. 

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These content controllers are doing this because they can. The distributors need their channels to keep people subscribing, so they pay. Remember when Dish and AMC got into a fight and subscribers no longer had access to a standard cable TV channel? Dish made sure to resolve that to the tune of $800 million because people expect that content with their television packages. Consumers may hate their cable or satellite company and their rising bills, but consumers are actually only seeing a part of the increase. Content costs have gone up 32 percent for TWC in four years, while subscription rates have increased by 16 percent, according to The Wall Street Journal.

The current situation does not appear to be sustainable for either cable companies or subscribers: even with the cable companies cushioning their customers from some of the rising prices, cable still lost 3 percent of its 56 million subscribers last year, following a 2.8 percent loss the year before, according to research firm IHS. If, at some point, the cable companies pass on more of their rising costs to their customers, you would expect those rates to accelerate. And, at some point, the cable companies are going to have to do something because they have begun to lose money, another new trend, writes The Wall Street Journal's Shalini Ramachmandran:

Cable used to be the golden goose. Largely operating like monopolies — both as sellers of TV to  customers  and as buyers from TV networks — they threw off enormous profits. Now, it's those programming producers like Time Warner and News Corp. who can profit by ballooning the programming costs. At some price point, though, either consumers or TV distributors will not be able to afford it.