Has Pay TV Reached A Tipping Point?

One more than one occasion I have pontificated over the growing dissatisfaction with cable TV rates, something that only seems to know one direction: Up.

While some lay the blame at the feet of the cable companies, it is the content providers who must shoulder the blame. It is they, after all, who have the greatest effect on cable TV subscription rates. All the cable companies do is pass on the cost, so as what they are charged by the content providers goes up, so does what you pay to the cable companies.

While some can try to make the argument that the cable companies should be able to absorb the costs, and in the past they have, there is little more they can do in that regard because their profit margin on video has shrunk to the point that there's no more they can absorb. The content providers haven't quite realized that they've already reached the point of diminishing returns as every time they raise the cost of their programming, the more subscribers they lose. Eventually it will reach the point where every rise in what they charge for their programming will bring in less money. For some, that point has been reached.

One content provider, Viacom, wanted such large rate increases that a number of smaller cable companies balked. Sixty rural cable companies have decided it isn't worth carrying Viacom's programming, which includes such channels as MTV, Comedy Central, Nickelodeon, and others. Instead of caving in to Viacom's demands for more money, the cable companies decided they would no longer carry their channels.

Viacom demanded a large rate increase for programming rights and a deal was eventually cut between them and NCTC. Apparently a fair number of rural cable operators said enough is enough with regards to the rate increases, and have decided to not renew their programming agreements.

According to the WSJ report, the moves have resulted in about 900K subscribers no longer having access to Viacom programming. During the initial impasse, I’m aware of several rural cable companies who polled their subscribers to see if the Viacom channels were important enough to keep, given the much higher programming fees associated with them.

Both sides seem to agree that pulling the content is a non-issue. Viacom says the disconnected subscribers represent less than 1% of their audience and are somewhat immaterial. The cable companies who have moved on without Viacom report little customer backlash. “My customers have proven to me that they are OK without it,” Chris Lovell, general manager of Coaxial Cable of Pennsylvania told the WSJ. Coaxial reports losing less than 1% of their customers due to the loss of Viacom programming.

While 900,000 lost customers may not seem like much to Viacom, it should be a troubling indicator that they may have pushed too far. How many more cable companies will balk the next time Viacom or other cable content providers raise their rates beyond the cable companies ability to sustain? Considering more alternatives are coming on line every day, one would think the content providers might want to rethink their business plan. Like the cable operators mentioned above, how many subscribers will actually miss the channels, particularly if their cable bill goes down?

High cable TV rates have already driven many to “cut the cord”, dropping their cable or satellite TV service and using streaming services like Netflix, Hulu, Amazon Prime, and a host of others to get their TV programming at a fraction of the cost. As rates continue to climb this trend may grow.

One thing that I find interesting is that a growing number of TV viewers are going retro, installing outdoor TV antennas to receive over-the-air broadcasts rather than keeping their pay TV service. One of my co-workers has done that, finding that he can receive more than a dozen TV channels. Between that and video streaming over the 'Net, he can find just about everything he wants.