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Summary:

Bernstein Research analyst Craig Moffett issued a research note that paints a damning picture of cable affordability in light of larger macroeconomic trends. Many U.S. households have less money for discretionary spending at the same time that the price of TV entertainment has risen dramatically.

crumpled money

We’ve long argued that price increases for pay TV packages were making the traditional cable or satellite subscription too expensive for a growing number of Americans. Bernstein Research Senior Analyst Craig Moffett issued a research note Wednesday that not only backs up that claim with some real data, but paints a damning picture of cable affordability in light of larger macroeconomic trends. In short, many U.S. households have less money for discretionary spending than they’ve had in decades, at the same time that the price of TV entertainment has risen dramatically.

No money for food, let alone cable

The latest note references a larger piece of Bernstein research entitled “The Poverty Problem,” which provides detailed data on income and expenditure trends for each of five income brackets. Taking that data into account, Moffett reports that the bottom two-fifths are being increasingly pressured due to the lack of real wage growth and the increase in the cost of necessities. Moffett wrote:

After the necessities of food, shelter, transportation and healthcare each month, the bottom 40% of U.S. households have already exhausted all of their disposable income. There is nothing left for clothing… for debt service… for cable… or for phone.

The inability to pay for necessities — much less home entertainment — threatens to upend an industry that has already more or less reached its saturation point. According to Moffett, approximately 86 percent of U.S. households currently pay for TV services. “Relatively few other sectors have this kind of economic exposure to the bottom half,” he wrote.

Big media companies also will be squeezed

While pay TV providers will be most directly affected by the potential for cord cutting, the trend will trickle down from big cable to the big media concerns. Since “virtually all the big media companies are now cable channel houses,” and since almost all of those are fully distributed throughout cable and satellite distributors, he argues that there’s no room for growth from greater penetration or the addition of new, smaller pay TV packages.

All that’s left to do, from a big media perspective, is to raise carriage and retransmission fees — something that squeezes consumers further and will likely result in even more subscription departures. Moffett notes that from 2005 to 2009, the weighted average revenue per user (ARPU) for cable and satellite companies grew 29 percent, from $59.82 to $77.43. While that increase is due in part to increased adoption of HD TV packages and DVRs, Moffett writes, “the disconnect between this increase and stagnant or falling incomes is striking.”

Online alternatives still a ‘dog’s breakfast’?

Moffett has long been a champion of the pay TV industry’s resilience in the face of competition from online alternatives, which is one reason why this research is so startling. He is, after all, the same guy who said cord cutters were “settling for a dog’s breakfast of Netflix and short-form video.” The reasons he cites for cord cutting haven’t changed since then; he still believes the average cord cutter is unemployed or poor — but his assessment of the value proposition of digital media for those Americans has changed slightly. Wrote Moffet:

No one would argue that the entertainment choices offered by Netflix are better than what’s available from cable — and neither are those offered by Hulu, nor YouTube. But when faced with a choice of pay TV or a third meal, will some customers choose to make do with a back catalog or off-the-run TV shows and movies? Of course they will.

Photo courtesy of Flickr user Dan4th Nicholas.

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  1. I ditched cable TV due to the fact that I was tired of paying $100 dollars a month to watch 5 channels out of the 200+ in my package.
    People that are cutting the cable are high income earners as well as lower income earners. My job pays 6 figures but I am frugal with it.
    I can watch all of my shows either over the air with an antenna in HD or on Apple Tv for a fraction of the price my cable company was charging me. Cutting the cable will be a growing trend. People are tired of yearly price hikes for lower quality programming. Let me watch what I want when I want. I will never pay for a package of channels again. Give me al la carte all the way. Bye bye pay Tv

    1. same boat, plenty of dough, just tired of paying 100 bucks for 5 channels… went to just Netflix a year ago and never looked back.

      1. I make a good deal of money, and I still have cable. But only because I’m lazy. I use Netflix almost exclusively. I just don’t have time to tivo programs and end up with a huge backlog … i find it much more enjoyable to go through binges of slightly older programming on demand. Currently I’m working my way through the Battle Star Galactica series …

      2. Same here. My earnings are in the 6 figures but also got tired of paying so much for so little. I cut my cord 4 months ago and am very happy with Netflix and the options XBox offers. I think I may have to go back though when the NBA season starts. No good option to get around that one…. I wish there were.

  2. I agree with Brian. I can certainly afford cable, but no longer see the value in it. AppleTV, Netflix, Podcasts and a USB OTA DVR for $150 from El Gato and I’m a happy camper, saving a grand a year and watching more interesting programming.

  3. If Apple makes an actual TV and it has built in apps, storage and interconnect with digital cable as it’s front end, everybody wins. I couldn’t stand TWC DVR, it was too difficult to use. Streaming to iPads is a good start. Allow APple to be the front end and I might subscribe again.

  4. The idea that all cord cutters are poor or unemployed is absolutely ignorant, any one with any common sense at all can see the difference, pay 130.00 a month or 25.00 ? Hmm I pay 25 I can now afford that vacation or finally pay off my car or credit card…. Do you need 200 channels ? No and more Americans now see that more then ever especially when even 6 figure families are having a price crunch

    1. James, I’m not implying that all cord cutters are. The point of the post is to illustrate that there’s a huge discrepancy between the number of people who should be able to afford cable and those who today pay for it. When 40 percent of households have little discretionary income but 86 percent subscribe to cable, you have to expect that at some point the number of those who pay for TV will inevitably decline.

      1. Another issue is competition for my entertainment/communication dollar. Back in the “old days” I didn’t have to shell out $35/mo for broadband and $50/month for every cell phone in the family. These new modern expenses cause me to look at what CAN I cut. First to go was land line phone. Second was Cable.

        http://www.cordcutterguide.com/

  5. We ditched cable recently at my house because our habits changed, and we watch TV on the television set so infrequently that Comcast’s exorbitant monthly fee simply didn’t seem worth it. My wife, daughter still at home, and I watch our favorite shows on our small screens (Macbooks and iPad, mostly) via Hulu Plus, Netflix, and Amazon Prime. Amazon is “free” since we buy Prime for the “free” shipping anyway and its video is a bonus; Hulu and Netflix cost much less than TV part of our Comcast bill.

    Funny story: We canceled cable TV but kept Comcast Internet. Comcast kept billing us for TV, so my wife called to get it fixed. Rep offered her Internet + Basic Cable for 6 months at same price as Internet only — and told her to call again in 6 months and ask for the best deal offered then or threaten to cancel the TV piece. Rep’s advice: keep doing that and we’ll pay Internet-only price and we’ll still get TV.

  6. Honestly i know about all this first hand. We would go out of our WAY, to keep the cable on. Shit, we wouldn’t pay the damn POWER bill just to keep cable on because they would give us a few more days than Time Warner.

    Oh, and we’re paying out THE ASS for Internet and Cable.

  7. I am very much surprised after reading your article. I got to know something new as well. Really an awesome article and explanation. Thank you.

  8. I agree with the other commenters. For many it’s not about being unable to afford cable it’s about how much of a rip off it is and how much the companies offering it suck (customer satisfaction ratings) and the fact that there are viable alternatives available. Why get punched in the face by Time Warner every month if you don’t really have to.

  9. As many have already said- this isnt just a trend among the poor. Its really a value question. We just cut the comcast cord after two years of questioning the $100/month expense for 100’s of channels of singing shows and over amplified advertisment. We’re pretty happy now to watch streaming or blu-ray movies or select shows when wanted and without the garbage. News? I dont need to be bombarded with sensationalized local ‘presonalities’, I can get that in concise form from CNN.com or any local outlet.com. Add weekly subscriptions to mags delivered to my kindle and I’ve got the news & entertainment value I need. Goooooood bye Comcast!!!

  10. Nice article. Not surprisingly, I’m also not in the bottom 40%, yet still have ditched cable TV. As others have suggested, cable TV providers rely too much on quantity to justify their prices and not enough on quality in my opinion. Personally, the value just isn’t there to justify the expense. The same is true for phone service, which is why bundles still don’t appeal to me.

    My second para got killed when logging in (yes, I should have copied all the text before hitting submit, but it would be nice to get that fixed). In short, I suspect that the “charging more for the same is the new innovate” trend will eventually slam internet-only customers. I’m already paying more now than ever before and don’t see any noteworthy improvement in the quality of my broadband connection.

  11. Just DL the episode the next night (or possibly the same night) and watch it free with no commercials. Duh.

  12. I must be the only guy in the world that can only see his “shows” by using cable. Maybe I am wrong. Can someone tell me where I can see Fox News live, or MSNBC live or CNN live or Discovery HD or the Speed Channel, or NAT GEO, or the Science Channel… All in “real” HD?

  13. “[Moffett] still believes the average cord cutter is unemployed or poor” – what’s the source of this assumption? To echo many of the posters below, I work in a high-tech industry and cable cutting is definitely a trend here amongst my peers, who could all easily afford cable if they wanted to.

    The poor/unemployed people I know are more likely to spend on cable as $100/mo is quite cheap for constant entertainment. But for cash-rich, time-poor people then quality and ease of access is the important issue, which cable fails to provide.

    1. Really good point. Still, even that model breaks at some point, don’t you think?

  14. Another “man’s eye view”. However as college kids leave home and establish their own households most of them are not signing up for cable. So Cable is losing the young subscribers, who are most likely to have high lifetime incomes. Also the age old practice of spending pennies on “women’s content” while spending mega dollars on men’s entertainment” is going to bite them in the butt. Go to this website. http://www.howcableshouldbe.com/ Chose 5 channels you feel are “men’s content” and add up their cost. Now choose 5 channels you feel are “women’s content” and add up their cost. Women are paying the same cable fee as men and getting screwed. They don’t like the programing provided to them and they don’t care if they lose it. So as soon as women can gain access to programing for their children without paying cable they will be gone. Also cutting the cable relieves women of having to parentally control a bunch of garbage they never wanted in the first place. 52% of the population is female and so it’s not real clear to me that a “man’s eye view” of cable and media is relevant financially. Also “women’s content” is content women will pay to consume. It isn’t relevant what men think of the content.

    1. Good point, Bes. A lot of women know there is something about cable that bugs them, but can’t quite put their finger on the problem….

  15. BEST CORD CUTTER GADGETS-LOGITECH REVUE(BEST GDGTS),PHILIPS MEDIA CONNECT TV AND PLAY ON MEDIA SEVER

  16. I was a cord cutter even before I needed to be. It just did not seem right to be paying $40/month for TV programming, when you could watch broadcast TV, and too much TV was a real problem for the kids.

    With the FCC mandated switch to digital TV, Malone and his ilk forced a lot of people to cable or satellite pay TV because digital and broadcast were incompatible (i.e. you could not receive a strong enough signal to see anything!). NETFLIX broke the barrier and let people watch as much as they wanted. For another analysis see:-

    http://virtual-cto.blogspot.com/2011/08/netflix-meets-grim-reaper.html

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