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Is Cable Killing the Golden Goose?

Cable companies continue to raise prices for their pay TV subscriptions, even as consumers are struggling to make ends meet due to the economy, according to Bloomberg. That may be the reason that the number of people paying for multichannel TV services dropped for the first time ever last quarter.

Bloomberg reports:

“Cable bills climbed about 8 percent on average in the second quarter to $123 a month on demand for digital video recorders and premium channels like Time Warner Inc.’s HBO, according to researcher SNL Kagan. By comparison, consumer prices rose 1.1 percent in the year ended June, according to figures from the Labor Department.”

That jump has come as all of the major pay TV providers have increased their basic cable rates over the past year. According to Sanford C. Bernstein analyst Craig Moffett, who was cited in the Bloomberg report, Comcast increased its prices 3.9 percent, Time Warner Cable prices jumped 7.1 percent, Cablevision grew 3.7 percent and DirecTV rose 5.5 percent during that time.

Clearly the increase in the amount cable subscribers pay is not just due to annual price increases. In addition to hikes in the basic subscription rate, they are also paying more for value-added services from their cable companies, such as broadband Internet, high-definition and whole-home DVR services and premium cable programming.

Even so, while the concept of cord cutting had largely been portrayed as a myth by cable companies and research firms, consumers showed their first inclination toward canceling their cable subscriptions in the second quarter.

Cable companies fared the worst, with 711,000 subscribers shutting off service during the quarter. But subscriber growth from satellite and IPTV distributors wasn’t enough to make up for the loss of cable subs. Altogether the pay TV industry dropped 216,000 paying customers in the quarter, marking the first time that multichannel subscribers have ever declined.

The source of that research, SNL Kagan, said the declines were due primarily to the weak economy and troubles in the housing market, and not a result of more online video becoming available. SNL Kagan also forecast that the decline would reverse in the second half of the year, during which the research firm expects multichannel distributors to add 900,000 new subscribers. Even so, the continued increase in subscription rates could become a problem for cable providers, particularly if the economy doesn’t come around sooner rather than later.

Photo courtesy of Flickr user sfxeric.

Related content on GigaOM Pro: Three Reasons Over-The-Top TV Apps Will Beat Big-Cable (subscription required)

5 Responses to “Is Cable Killing the Golden Goose?”

  1. Brett Glass

    As users go to the Net for video and cut off cable service, cable companies have no choice but to raise their rates. After all, there are fewer people paying for the production of the same programming! This isn’t even a matter of supply and demand; it’s a matter of simple arithmetic. The books have to balance. Don’t accuse the cable companies of greed when in fact it’s the people who want everything for free who are being greedy.

  2. JELorenz

    Cut the cable (TV and phone) last week; kept Internet. We TiVo’d just one series per week plus the daily evening news. It’s just not worth $70 a month. Paid $50 for an OTA antenna. NPR comes in loud and clear. Add Netflix and Roku to the the mix, and we have more than enough to watch.

  3. It is all about supply and demand. Right now, cable TV companies believe they have a lock on the supply so they can demand more for it. Their only real competitor is satellite TV but they don’t seem to be in any rush to ignite a price war. Online video is not a player at this point. However, if online video can ever be profitable, the cable and satellite companies will finally have a hard-to-beat price competitor and prices will start to fall and fall fast.