Monday, January 16, 2012

Raising Cable Rates And Cord Cutting

Over the last few years, cable operators have watched their basic subscriber numbers drop as customers fled to alternative cable choices like satellite and telco. Operators would argue that while they lost "some" customers, others chose to buy into the full suite of cable, broadband, and telephone and the average revenue per customer had actually risen. But some are concerned that eventually the continued increase in cable subscription rates will cause these triple play customers to downgrade and eventually switch as well.

The recipients of these initial customer defections have been satellite and telco. Their base has risen at the expense of the cable operator. Their cost conscious customers may be in for a rude awakening. "DirecTV started notifying its nearly 20 million subscribers during this billing cycle that it will be charging more for its programming services starting Feb. 9." As programming fees increase annually, the need to keep profits in line causes this pricing change. But customers may object and how much it hurts their pocketbook may determine the future direction of basic sub growth or decline.

For customers, it means a big decision. Put up with the rising costs of TV programming or "cut the cord" and rely on alternative methods to watch your TV. For some it could be the installation of a digital antenna to retrieve over the air signals; for others a reliance on just a broadband connection to stream your shows and movies. And a number will try to negotiate with their provider citing competition and plan to switch unless a discounted deal can be offered. I admit to using this tactic a number of times.

And with the investment by streaming providers like Hulu and Netflix into original programming as well as a broader quantity and quality of TV programs, the choice to switch to a streaming model could get easier and easier. As customers buy only the streaming packages they want, they can get the shows they desire at a lower cost than a cable subscription. And that is what could ultimately upset the cable/satellite/telco operator cable subscription apple cart.

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