[Infowarrior] - Cable Prices Keep Rising; Customers Keep Paying

[Richard Forno]

May 24, 2008
Cable Prices Keep Rising; Customers Keep Paying
By MATT RICHTEL
http://www.nytimes.com/2008/05/24/technology/24cable.html?_r=1&oref=slogin&partner=rssnyt&emc=rss&pagewanted=print

Americans discouraged by higher gas prices and airline fares may  
decide to spend more vacation time at home, perhaps watching television.

But that, too, will cost them more than ever.

Cable prices have risen 77 percent since 1996, roughly double the rate  
of inflation, the Bureau of Labor Statistics reported this month.

Cable customers, who typically pay at least $60 a month, watch only a  
fraction of what they pay for — on average, a mere 13 percent of the  
118 channels available to them. And the number of subscribers keeps  
growing.

The resiliency of cable is all the more remarkable because the  
Internet was supposed to change all things digital. Technology has led  
to more choices and lower prices for news and music as well as  
cellphone and landline minutes — not to mention computers, cameras,  
music players and phones themselves.

Yet here is a rare instance where Silicon Valley has failed to break a  
traditional media juggernaut. And not for lack of trying.

Technology companies keep insisting they will provide new low-cost  
ways to get video into the home, but so far their efforts have created  
more black boxes to stash under the TV, not real competition for cable  
that could bring prices down.

“A couple of years ago, there was a thesis that we were at the  
twilight of Comcast as the gatekeeper,” said Craig Moffett, a cable  
industry analyst at Sanford C. Bernstein & Company. “That thesis still  
titillates some. But technologically and economically, it’s probably  
not going to happen.”

So why hasn’t technology had a bigger impact? One answer is the  
alliance between cable companies and Hollywood producers of content to  
sell channels in bundles, rather than letting consumers pay only for  
the channels they want.

The producers of cable television content share $15 billion to $20  
billion a year in fees from cable subscribers, roughly equal to the  
$20 billion they receive in advertising revenue, Mr. Moffett said.

Without those fees, the cable companies say, prices would go up.

“If each channel depended on individual consumers electing to pay  
individually for it, this would slash potential viewership and  
seriously hurt the ability of most channels to attract their current  
level of advertising dollars,” said Jenni Moyer, a spokeswoman for  
Comcast. “Lost ad revenue would have to be replaced by higher license  
fees.”

The industry says the digital era has brought its customers better  
image quality, more on-demand services and solid value through  
packages that combine cable, phone and Internet service. It also says  
consumers are actually getting more viewing value for their dollar, at  
least relative to inflation. The National Cable & Telecommunications  
Association says that from 1998 to 2006, the price consumers paid for  
each viewing hour was essentially flat.

The chief economist of the Federal Communications Commission, Gregory  
S. Crawford, disagrees, saying the industry is not factoring in the  
real cost of the programming that subscribers are watching. By his  
analysis, the increase has been around 50 percent from 1997 to 2005.

The F.C.C. and some politicians have been in a pitched battled with  
the cable industry, trying to get it voluntarily to offer so-called à  
la carte pricing. But cable companies insist that this is not  
economically feasible.

Kevin J. Martin, chairman of the F.C.C., said in an interview that  
since 1996, when Congress increased competition in telecommunications,  
prices have dropped for many other services.

“We’ve seen the opposite occur in the cable industry,” he said. “The  
dramatic increases in pricing we’ve seen are one of the most troubling  
issues from a consumer point of view.”

In 2007, average monthly revenue for each Cablevision subscriber was  
$75, up from $65 in 2005, according to SNL Kagan, a research company.  
At Time Warner it was $64, up from $54.50.

The cable industry has never felt the pricing pressures the music  
industry is feeling. The most obvious reason is that Internet speeds  
have not been fast enough to permit easy downloading of movies and  
other video material.

That is changing, though. People are viewing millions of videos online  
each month — albeit mostly short video clips, and not Hollywood  
movies. At the same time, the use of file-sharing tools like  
BitTorrent to download illegally popular movies and television shows  
is growing.

Another factor helping the cable industry is the difficulty of getting  
video from the computer onto the TV. That may not be a deterrent for  
those who have grown accustomed to watching movies on their laptop.  
But the last thing many consumers want to do is hook up wires or  
program a new box before sitting back to relax and watch TV.

In that sense, the lure of cable appears to have a sociological  
component. In a stress-filled life, cable television is easy to use.

“I work eight hours a day facing a computer. When I come home, the  
last thing I want to do is mess with another computer,” said Eric Yu,  
24, a college student in San Francisco who pays around $80 a month for  
cable.

Mr. Yu said he watches only a handful of channels, including some in  
high definition like National Geographic. But to get them, he has to  
pay for a premium package. “I just pay the bill and try to forget  
about it,” he said. “It lessens the pain.”

Evelyn Tan, 22, a friend of Mr. Yu, takes a different approach. She  
pays Comcast $33 a month for Internet access and does not get cable  
television — but she does watch TV programming.

In fact, she watches ABC shows like “Desperate Housewives” and “Gray’s  
Anatomy,” which are free on the Web. When she wants to watch shows or  
movies that are not readily available online, she says she easily  
pirates them. “I would not pay for cable TV at all,” she said.

Broadcast networks like ABC, NBC and Fox are starting to put their  
programming on the Internet. But most cable channels do not because  
they depend on subscriber revenue.

Albert Cheng, executive vice president for digital media at the Disney- 
ABC Television Group, said the industry was trying to prepare for an  
era in which more video is watched on computers.

“It wasn’t lost on us what happened to the music industry,” Mr. Cheng  
said. Even though the audience is growing for ABC shows online, he  
said, this is supplementing, rather than undercutting, the television  
audience.

Enter Silicon Valley. It is trying to marry the content people want  
with their preferred setting for viewing it. There is a host of new  
set-top boxes and consumer devices aimed at bringing video and other  
content from the Internet to the TV.

Apple’s iTunes store offers 20,000 episodes of some 800 shows at  
typically $1.99 or $2.99 an episode, effectively creating an à la  
carte option. But consumers must either watch on their computers, wire  
the computer to the television or get an Apple TV.

This week Roku, a Silicon Valley start-up, began selling a $99 box  
that streams movies from Netflix straight to the TV. And this summer  
Hewlett-Packard is expected to introduce a device called the  
MediaSmart Connect, a sleek box connecting computer and TV that lets  
users watch Internet videos as well as rent or buy some 6,000 movies  
through CinemaNow, an H.P. partner.

But the box will also demonstrate how much of a gap still separates  
the computer screen and the TV screen.

Carlos Montalvo, vice president for marketing of connected  
entertainment at H.P., said the MediaSmart Connect and similar devices  
would not offer much of the programming provided over cable, or even  
programming that content companies allow to be delivered over the  
Internet to computers. The reason, he said, is that this content is  
licensed to be shown only on a computer, not delivered via computer to  
a TV.

“Simply because the technology is there doesn’t mean that the large  
opus of content — both television and movies — that is available on  
the two-foot screen can move automatically to the large-screen TV,” he  
said.