Monday, January 18, 2016

As Cable Rates Rise, Expect More Cord Cutting

Programming license fees continue to rise and cable operators respond by raising monthly subscription rates to its customers.  According to Multichannel, cable rates are expected to rise about 3% in 2016.  It amounts to a few dollars more each month but consumers are already getting tired of any and all increases.  Comcast rates are rising just as they planned to move channels off basic to more expensive digital tiers.  That means that consumers are paying more for less.  Skinnier packages don't necessarily mean lower costs. 

What will subscriber levels look like this year.  Some cable operators have seen a slowdown in lost customers and try to point to a reversal in the trend toward more cord cutting.  First quarter subscriber levels should dispel those myths.  As OTT networks like Amazon Prime, Hulu, and Netflix continue to push more original programming, and customers become more inclined to use them over cable TV for their video offerings, the value of cable decreases.  Cord cutting will only become more severe.  And for households on a limited budget, cable TV will stop becoming a must have for the home. 

Millennial usage has significantly shifted from the big screen television set to the handheld tablet or smartphone.  Their primary video consumption, driven partly by peer pressure, to watch and binge on OTT programming.  And if this next generation sees less value from cable, then when they leave their parents' home for their own residence, cable TV will not be a necessary utility for their new home. 

The wire to the home will be seen only for broadband consumption, not for cable or for phone.  And if cellular companies can make wireless packages that keep the price point for data reasonable, then consumers may make the cell phone company the primary provider of broadband services.  That is the trend facing the cable operator and that is the challenge that this industry must focus to find its next growth opportunity.