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Cable prices not out of whack, a la carte won't work, analyst says

October 05, 2012|By Joe Flint
(Bernstein Research )

If you want to save money, you might be better off getting rid of your dog before you cancel your pay-TV service, a prominent media analyst says.

In a report issued Friday, Sanford C. Bernstein analyst Todd Juenger takes a contrarian approach to all the talk about skyrocketing cable bills and the calls to let consumers pick the channels they want instead of having to pay for dozens they never look at.

With regard to cost, Juenger notes that while pay-TV prices are rising faster than inflation, the growth is slower than a lot of other products and services including pet food, public transportation, gas and even coffee.

Currently, the typical cable bill is $72 a month, compared to $55 in 2005. This is just for video services, not broadband or phone or other offerings from pay-TV distributors. That is a compound annual growth rate of about 4.7%. Juenger checked with the American Pet Product Manufacturing Assn., which said in 2005 the average cost of caring for a dog was $131 a month and has grown by 4.8% on a compound annual basis since then.

Juenger isn't really suggesting people should stark kicking their dogs to the curb to save a few bucks. After all, who will we pet while watching "Here Comes Honey Boo Boo"?

But he does note that even that 4.7% compound annual growth rate for pay TV can be challenged. TV viewership, Juenger said, has risen over the past five years, as have the number of channels and (arguably) quality of programming. "The real unit price of pay-TV has been growing even slower than 4.7%," Juenger said.

Despite that, there are still many who want to be able to choose their own channels in the hopes that this would keep prices low. It's a nice idea, but, as Juenger points out, one that wouldn't work. That's because the dozen channels one subscriber might want would not be the same that his neighbor would want. ESPN charges about $5 per-subscriber, per-month to be in every home. If ESPN were suddenly in one-third of those homes, that price would triple in order for ESPN to pay for all the sports it carries.

The same is true for entertainment channels. Nickelodeon goes for 55 cents per subscriber, but if it were suddenly in far fewer homes, the channel would have to raise its prices or say goodbye to "SpongeBob SquarePants" and "Dora the Explorer."

"The fact that the current bundled model is filled with cross-subsidies works both ways for every household," Juenger said. "On one hand they are forced to pay for channels they don't want. On the other hand, other people are helping subsidize channels they do want."

Juenger said he is not unsympathetic to those concerned about the rising cost of pay-TV but does feel that the industry has become an easy target for academics and consumer advocates.

"The proportionality has been overblown, at least to those of us who make a living studying the economics of the industry, because the focus of the discussion has been centered on the rising cost of sports rights and affiliate fees, as opposed to the rising price to consumers of pay TV," he concluded.

That may be, but I'm not getting rid of my cats.

ALSO:

Baseball hits it out of the part in new TV deal

Cable group says sports rights are out of control

CBS to collect $1 billion in distribution fees

Follow Joe Flint on Twitter @JBFlint.

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