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Why is Cable TV So Expensive?

The cost of pay-TV has reached a tipping point.

With the average cable bill now coming in at $99 per month, a price which has risen at nearly 4 times the rate of inflation, and far faster than household incomes, it’s not hard to see why so many consumers are pulling the plug.

But it’s also important to understand how we got here: the major disconnect between consumers and the content that they’re actually paying for when they get that TV bill each month.

Between a Rock and a Hard Place

It’s easy for consumers to point the finger at the cable companies. And that’s not entirely undeserved. The cable companies are essentially middle-men. They pay the networks to carry their channels, which they then turn around and sell to you the consumer at a profit.

However, while they deserve much of their unpopularity, largely thanks to a poor record of customer service, when it comes down to the price of TV, the cable and satellite companies are largely caught in the crossfire.

Because of their position, they tend to take all the blame, and the networks use this to their advantage when negotiating. When it comes to popular channels, they’re absolute must-haves for the cable providers, at whatever the price. If a TV provider were to stop offering a popular channel, subscribers would switch in droves to another provider that still carried the channel.

So when they get to the negotiating table, the networks hold all the cards, and they swing for the fences, which ultimately gets passed on to consumers in the form of that skyrocketing bill.

My Way or the Highway

The most popular channel on the cable dial is Disney-owned ESPN, which comes in at over $6 per subscriber per month. That’s more than the next 5 most popular channels combined.

Now chances are, if you’re not a sports fan, or even if you’re just trying to save some money on your monthly bill, you might be tempted to forego that significant chunk of your bill, and many others. But Disney and ESPN have made sure that you don’t have the option to do that.

In addition to being able to charge whatever outrageous price they want, these big media companies also force TV providers to bundle channels together. You want ESPN? That’ll be $6. Oh, also you have to take a dozen more less popular channels and their associated fees. ESPN Classic, ESPN Deportes, ESPN U, even totally irrelevant channels like Disney Junior and Disney XD, can all be forced onto the cable providers, and thus their customers as well.

The End, or a New Beginning

Because consumers are insulated from the cost of the content that makes up their cable package, the free market that would ordinarily keep prices at a stable level ceases to function.

This was a dream come true for the networks that were able to get away with charging a king’s ransom for their content, but now that consumers are getting fed up and canceling their cable subscriptions all together, the entire system is collapsing.

In response, many networks are launching their own direct-to-consumer subscription VOD products, a development that will ultimately correct the TV industry’s current upheaval.

When networks like ESPN are selling directly to consumers, they’ll find out the hard way what consumers are willing to pay for what content. The gouging will end because any subscription priced too high will simply be rejected by consumers.

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