How Long Can Video Subscription Prices Keep Rising?

By Gary Kim February 19, 2014

Since 2010, the price of the most-affordable Cox Communications video package in Hampton Roads, Virginia has increased 83 percent. That is a shocking number, but probably hides the complexity of video entertainment price increases since 2000.

By some measures, since 2000, the U.S. consumer price index (which excludes housing prices)  increased by about 34 percent, while another index, the “Everyday Price Index,” which includes such costs, shows a 57 percent increase between 2000 and 2012.

So cable TV subscription prices might be assumed to have increased at about that same rate. Not so.

Even using the EPI figures, cable TV prices have grown nearly twice as fast between 2001 and 2011, for example.

Annual price increases in the video subscription business are not new. The complicating factor is the prevalence of triple-play purchases.

According to one analysis, cable TV operator triple-play prices grew 20 percent between 2010 and 2013, about 6.3 percent annually.

Of course, noting that triple-play prices are up is hardly surprising. One might note that triple-play bills were 300-percent higher in 2011 than in 2001. But in 2001 most consumers bought video service at $40 a month in 2001.

image via shutterstock

By 2011 most were buying video, phone service and Internet access, with a typical monthly bill of $128, almost precisely three times the cost of the single-service fee of 2001.

So it is not meaningful to compare bill size from 2001 and 2011. If each service cost the same amount, then buying three services instead of one would have direct and linear implications for bill size.

On the other hand, isolating just video prices In Multomah County, Oregon, for example, video prices grew by about 100 percent from 2000 to 2011, exceeding the background consumer price index and the everyday price index.

To be sure, the largest percentage increases, in any given year, are for the most-basic packages that historically have been the most “price limited,” as such basic packages typically were designed in part for political (to get and retain a franchise) and marketing reasons (firms can advertise the lowest price and then upsell).

In the past, one might have attributed the cost increases, in large part, to higher programming fees. That remains accurate.

As always, the price hikes are blamed on the cost of programming contracts. But that likely is only partly true. Like other service providers, Cox has invested in new infrastructure and customer service.

ISPs also are investing in broadband infrastructure, upgrading speeds, as the U.S. industry continues its march towards gigabit access speeds, and prices for other key services also are climbing, it appears.

The point is that even if one agrees such outsize video entertainment price increases cannot continue forever, it is hard to see any significant change without some fundamental disruption of the video ecosystem. Streaming alone might, or might not, do so, since streaming providers still have to pay for content rights.

Edited by Ryan Sartor

Contributing Editor

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