Cable’s $75 Billion Investment Generates New Services, More Viewers

Washington, D.C. – Greater value for consumers, burgeoning availability of new digital services, and an increase in viewership of cable channels are the results of the cable industry’s seven-year, $75 billion investment – representing more than $1,000 per cable customer – in advanced broadband networks and higher quality programming, according to a white paper released today by the National Cable & Telecommunications Association (NCTA).

The NCTA white paper suggests that cable pricing is impacted by costs for technology, content and labor, all of which have greatly enhanced the value of the product, while increasing significantly in recent years.

The seven years that have elapsed since the Telecommunications Act of 1996 was enacted have been years of upheaval and crisis for many providers of communications services, and many of the promises and expectations that accompanied that legislation have not yet been fulfilled,” according to NCTA. “While encountering much of the same Wall Street turmoil as other companies in the telecommunications sector, the cable industry has, nonetheless, maintained course and kept its commitments. And consumers are realizing the benefits.”

Cable’s investment, NCTA reports, has produced a broad array of additional video programming, including new “digital tiers” featuring video channels and CD-quality music, as well as growth in “video on demand” services; wide availability of high-speed Internet access; and competitive local phone service, over traditional circuit-switched technology as well as new Voice over Internet Protocol (VoIP) technology.

Digital cable has attracted more than 20 million customers; high-speed Internet service has drawn 12 million customers; and more than 2.5 million households have signed up for competitive local phone service, NCTA said.

In addition, between 1997 and 2002, basic cable program networks increased their investment for original programming and program acquisition by 115 percent – an average of 23 percent per year – from $4.2 billion to $9.1 billion, which has generated substantial increases in the viewership of cable programming. During the past 10 years, basic cable network viewing share in all TV households increased 105 percent, outpacing cable prices during the same period, NCTA reports.

“Cable customers are enjoying more value for their entertainment dollar, and the increased viewership of cable networks reflects that value,” said NCTA President & CEO Robert Sachs. “The investments made by the cable industry not only have improved the choice, quality and value of cable programming, but have resulted in more technically reliable systems, improved customer service, and advanced services that millions of consumers are enjoying.”

In addition to the $75 billion that cable operators have invested in system upgrades, monthly subscription fees for cable TV service are directly related to several cost factors that are rising much faster than the rate of inflation, NCTA reports. The primary drivers of cable prices are the increased cost of producing and acquiring programming, especially sports related programming, and the increased cost of labor, which has risen five times faster than inflation for the cable and pay TV sector.

Key findings reported by the NCTA white paper include:
  • Program networks are facing increasing costs from sports and other entertainment. Acquisition costs for sports and other original programming have risen substantially, and the cost of television rights for major sporting events has skyrocketed.
  • Vertical integration in the cable industry has diminished and doesn’t affect programming prices. Since 1992, the percentage of programming networks in which cable operators collectively have any ownership interest has dropped sharply to 21 percent, and most cable operators have ownership interests in only a single digit percentage of those networks or none at all.
  • Retransmission consent requirements imposed by the Cable Act of 1992 are driving up consumer prices. In recent years, many broadcast stations have insisted, as a condition of retransmission consent, that cable operators carry various cable networks also owned by the broadcaster. In addition, some broadcasters may require excessive fees for the forced carriage of those cable networks.
  • Cable’s labor costs have sharply increased. The industry is hiring better educated and more highly trained employees to provide consumer support for new services, and cable customer service in many areas has expanded to be available on a “24-by-7” basis 365 days a year. From 1997 to 2001, total wages paid by “cable and other pay TV services” rose 60.6 percent, according to the Bureau of Labor Statistics, roughly five times the rate of inflation.
  • Franchise fee requirements add to the cost of cable service. The average customer now pays $2.55 per month – more than $30 a year – just for local franchise fees. The amount in franchise fees of which cities are entitled to collect rose from $1.385 billion in 1996 to $2.183 billion in 2002 without any increase in the cost to local governments of regulating cable systems or managing rights of way.