The price of cable

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Right on the front page of NCTA’s website, down in the lower right corner, we run a little feature called “Statistic of the Week.” Since cable prices are always a hot topic, and since I’ve made some reference to the notions of price and value, I thought I’d highlight what we’ve run recently.

This week it was:

Cable’s PPVH decreased by 3.3% on a nominal basis between 2001 and 2006 and 15.4% on a real, or inflation -adjusted basis

And this was footnoted as follows:

[PPVH = Price Per Viewing Hour = the price of a cable subscription divided by the number of hours per month spent viewing basic cable networks]

Source: Average basic cable rates from SNL Kagan divided by average basic cable network viewing time from CAB

Fine. What the heck does this mean? It means that how much you watch cable television ought to be factored into price and value. Any discussion of cable prices ought to be put in context. NCTA doesn’t think that the nominal price is the most accurate measurement. It’s not like a loaf of bread or a carton of milk; over time the service that cable offers to customers changes and the way people use that service changes.

The FCC is quick to point out that the price per minute (which is a quantity-adjusted metric much like PPVH, the price paid divided by the amount consumed) of wireless service has been declining, yet the Commission fails to acknowledge or discuss PPVH. Consumers are paying more for wireless service and they are paying more for cable service, but they are also consuming (talking/viewing) more of both services too. They must be finding value and quality in each of these services.

As I mentioned in my first post, I’ve been a cable customer for most of my life. I pay more today than my parents paid back in the early Seventies. But I get a lot more channels, the programming is more diverse and is of a higher quality and I now spend more of my time tuned to more cable networks than I used to.

We sent a letter to the FCC a year ago. In it, NCTA’s President & CEO Kyle McSlarrow noted that today’s marketplace is quite dynamic and there are better ways to measure price:

Although it’s short-sighted to focus on video pricing alone, there are more obvious ways to measure prices that actually stand up to scrutiny. It is useful for consumers and policymakers to know whether price increases are or are not accompanied by corresponding increases in the quantity and quality of the service or goods being sold. That’s why it is important to analyze prices not only on an inflation-adjusted basis but also on a quality-adjusted basis.

One way is to simply measure the price per channel as the FCC has done for some time. And the data clearly show that the real price per channel over ten years has gone down, not up.

He also talks about PPVH and you can read the whole thing for yourself. I’d also recommend looking at this study by Professor Steven S. Wildman of Michigan State University. He argued that the “real (inflation-adjusted) price of cable service divided by the number of hours spent watching basic cable programming” was a good way of measuring prices. If you pay 10 bucks for service and watch 10 hours, then you paid a buck an hour. If you pay 20 bucks and watch 60 hours, then you paid 33 cents an hour.

  • http://ditzler.blogspot.com Wyatt Ditzler

    As much as I like watching television. I pay way to much to get access to the content that I do watch. Currently I have to pay for basic service, basic digital, digital premium, and HD service. (If my memory serves). What I really dislike is the extra channels that I never watch. For instance the religious channels, the channels in Spanish (I only speak English), the home shopping channels, oh and Fox News Channel (Ann Colter scares me some times).

    The obvious solution is to allow customers to pay for what they want and not subsidize channels they do not watch. Then the price metric would surely go down and the price consumers pay for cable might as well.

  • Paul Rodriguez

    I think the key quote from your comment is this one:

    Then the price metric would surely go down and the price consumers pay for cable might as well.

    The evidence doesn’t back you up. I refer you to this NY Times article:

    Yet as appealing as the idea might seem at first glance, there is a reason that Congress has not taken the bait and passed an à la carte law. À la carte would be a consumer disaster. For those of you who yearn for it, this is a classic case of “be careful what you wish for.”

    True, if you decide to take only one or two channels, à la carte pricing will save you money. But how many people are going to limit themselves to one or two channels? In fact, even if you pick as few as a dozen channels, à la carte will almost surely cost more than your current “exorbitant” cable bill.

    The reason is that unmoored from the cable bundle, individual networks would have to charge vastly more money per subscriber.

    It goes on, with some specific calculations.

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  • http://ditzler.blogspot.com Wyatt Ditzler

    From the same NY Times article

    “Take, for instance, ESPN, which charges the highest amount of any cable network: $3 per subscriber per month. (I’m borrowing this example from a recent research note by Craig Moffett, the Sanford C. Bernstein cable analyst.) Suppose in an à la carte world, 25 percent of the nation’s cable subscribers take ESPN. If that were the case, the network would have to charge each subscriber not $3, but $12 a month to keep its revenue the same. (And don’t forget: with its $1.1 billion annual bill to the National Football League alone, ESPN is hardly in a position to tolerate declining revenues.) ”

    The price would go up for those that watch ESPN, why because their revenue base has changed. Instead of all cable viewers paying $3 to see ESPN, the number of viewers have changed thus making ESPN adjust its price in order to keep its “revenue the same”. Since when is it the consumer’s duty to keep the profits/revenues of an organization in the positive? I must have missed that in my 8 years of college.

    I also don’t see how this article is evidence that a la carte is more expensive. ESPN was given as an example, but what is the research and methodology behind the numbers?

    Thanks for responding, usually people post to blogs and never hear anything back from the blogger.

  • Michael Turk

    Paul can weigh in as well, but let me tackle your question. It’s not your obligation to keep revenues in the positive, but a channel with revenue in the negative will not be a channel for long.

    Like any business, cable channels have operating costs for obtaining and distrbuting programming. The current model ensures diversity because it allows new networks to develop an audience by letting larger established channels share the costs. Programmers typically package new channels with more popular existing channels until the new channel can develop a following. It, in turn, may become the anchor of it’s own package.

    In an a la carte model, packaging channels together isn’t an option and channels would have to account for those costs via subscribers or via advertising.

    Advertising is based on the size of the viewing audience. If the viewing audience is small, advertisers would be unwilling to pay a high price for ads, leading to higher prices per subscribers to offset ad revenues.

    New channels and channels with small, but dedicated audiences would be unable to charge much for advertising, so they would have to charge higher subscription prices. That creates a demand curve with fewer people willing to pay as the cost rises.

    This is where your question comes in. You would be under no obligation to guarantee that any channel is profitable, but there would also be no guarantee that the channels you watch now would even be available.

    If you would pick ESPN and FX, maybe you would be fine. If you’re a NASCAR fan and would pick Speed, a sportsman and would pick Versus, or a gamer and would pick G4, you may find yourself forced to pick ESPN or FX because niche channels may become unsustainable in an a la carte model.

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  • http://greggannon32.jaiku.com/ Russell Serafine

    Nascar rules! I just wish that Dale was doing better this year.

  • Slick

    "[PPVH = Price Per Viewing Hour = the price of a cable subscription divided by the number of hours per month spent viewing basic cable networks]"

    viewing "basic cable"… what would be the PPVH for the median cable tv bill, including non-Basic services?
    That would be more accurate.

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  • http://www.piscinetubulaire.net Ben

    I live in Canada and we have the same situation here. I agree with Professor Steven S. Wildman tho.

    Ben
    Last blog: Blog de recettes and Info sur les piscines