The price of pay TV will more than double in the next eight years, enticing millions to cut the cord with cable companies in favor of digital streaming services.
Media-Mind is our column charting how technology’s opportunities and challenges transform traditional media and entertainment, for better or for worse.
Customers in the U.S. paid an average of $86 per month last year for their cable TV subscription. New research by NPD shows that number will hit $120 per month by 2015 and exceed $200 per month by 2020. The prospective jump could force subscribers to ask themselves some interesting questions: do they want to make their car payment this month, or would they rather watch HBO?
The wave of lost subscribers has not hit cable companies yet, but the numbers are already beginning to trend in a dangerous direction. More than half a million people dropped their cable service in the second quarter of this year, a small number when compared to the 100 million who do subscribe, but it’s more concerning considering the total number of people subscribing to pay TV increased each quarter until recently.
Cable companies blame the inflating prices on the increasing cost of licensing fees for programs. National channels like HBO and Showtime demand more money than ever for the right to broadcast their content, forcing providers to pick their poison — either offering less programming or raising subscription fees.
For now, enough people are willing to pay for their cable subscriptions to get the content they want. However, as fees continue to rise, more customers will be priced out of the market and cable providers will have to reconsider the way they operate their business.
Time to Stream
Making matters worse for pay TV is the emergence of digital streaming services like Netflix, providing a secondary option for customers facing the rising cost of cable. At last year’s average price, the cost of cable service for a full year totaled over a $1,000, while a subscription to Netflix’s streaming program cost customers $100 yearly over the same period.
Pay TV enthusiasts argue the price difference reflects the amount of content being provided. A cable subscription gives users access to all the content they want the first time it airs, while Netflix subscribers are locked out of a lot of current media and forced to search the Web to fill gaps in their programming library. However, for customers on a tight budget, there is no argument that a service like Netflix is the only way to go.
Netflix’s low cost allows it to hold its ground as a legitimate alternative to cable. In addition, Netflix offers a convenience cable can’t by allowing users to access their content when they want it and where they want it via mobile apps for their smartphones, tablets and computers.
Two Sides Fighting the Same Battle
In the competition between Netflix and cable companies, the common phrase “the enemy of the enemy is my friend” does not apply. Both sides are in a struggle with content providers as they attempt to beef up their slates of movies and TV shows. As providers demand more money, Netflix and cable companies must pay the price or face the consequences of losing out on programming that could lead to pivotal swings in subscriber numbers.
Netflix CEO Reed Hastings said his company agreed to pay $4 billion in licensing fees over the next three years, and he envisions shelling out billions more in the near future. More spending means more content on the service, but if it forces the company to raise the price of its subscription fees too high it will hurt the service’s main advantage over pay TV.
On the other side, cable companies face a similar dilemma. The price of Netflix will rise as the digital streamer spends more money on licensing fees, but it will unlikely rival the incredible costs for a pay TV subscription. The monthly price for Netflix would have to increase by over a thousand percent before it was equal to the cost of today’s average cable subscription. And, with the cost of pay TV set to more than double in the next eight years, the two will likely continue to be miles apart in price for some time.
Cable: Adapt or Die
It is clear cable companies can not continue to increase their prices at the current rate and still maintain the dominance of the in-home entertainment market they currently enjoy. Pay TV will have to evolve in some way to make prices cheaper for customers. Some options include offering channels a la carte or letting customers customize their cable packages with less programming at a cheaper price. However, these new models will take time to execute and will still require the approval of content providers, who have historically benefited from bundling channels.
Examining the subscription numbers makes the idea of a competition between Netflix and cable companies somewhat of a stretch. But the longer pay TV providers wait to modify the way they offer their services, the bigger the window of opportunity gets for a company like Netflix to shake things up.