Expanded-Basic Rates Up 5.9 Percent in 2008; Per-Channel Costs Less than CPI Over Time
The FCC confirmed that expanded-basic video prices continued to increase, in a report Tuesday detailing a survey of charges in 2008 by cable operators, city-owned video providers and telco-TV such as Verizon’s pay-TV service but not AT&T’s U-verse. That year, the average monthly bill for expanded-basic service rose 5.9 percent to $52.37, compared with a 0.1 percent rise in inflation. Over a 14-year period ended Jan. 1, 2009, cable rates rose 134 percent, while the consumer price index that measures inflation gained 39 percent. But bills rose 18 percent to 71 cents a channel during that period, for a 1.2 percent average annual increase. Industry officials and an economist whose group sometimes opposes regulation pointed out some of the report’s shortfalls, while a nonprofit group that’s concerned with rate increases said the survey supports its fears.
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Fifty-five percent of the rate increases during 2008 came from higher programming costs, which ran operators $17.67 on average that year, the FCC said. It randomly surveyed communities where the Media Bureau hasn’t found cable operators face competition from DBS providers, LECs or because the cable incumbents have low market share, and also areas without such findings of effective competition. Because of the surge in effective competition findings, which almost doubled in 2008 to 7,034 as of Jan. 1, 2009, comparisons between areas with such findings and those without are harder to make. Prices rose more in areas with competition, which the report also said have more channels on average.
Prices for basic service, taken by 13 percent of cable subscribers, rose 6.9 percent in 2008 on average to $17.65. Costs for digital cable, including a remote and set-top box, rose 7.2 percent to $15.55, atop what subscribers pay for expanded-basic service, the FCC said. Forty-seven percent of subscribers could buy a so-called family friendly package, with 0.4 percent doing so as of Jan. 1, 2009, the report said. The average cost for such a package was $32.76. Operators in six of the 762 communities surveyed by the commission offered one or two networks individually, the agency said. “The offerings were limited to four networks -- Fox Sports South, Golf Channel, TBS and WGN America,” which the commission said cost between $1 and $1.53 each monthly.
The Media Bureau report to Congress is mandated to be done each year under the 1992 Cable Act but is often completed years after the period covered. The last report, covering 2006 and 2007, was released on the last business day that Kevin Martin was chairman. The new report is at http://xrl.us/biiuit. It found that average cable system capacity was 770 MHz as of Jan. 1, 2009, up 1.7 percent from the previous year.
Cable industry officials said the FCC study is outdated and focuses on the wrong data. It’s “largely irrelevant” because most cable customers buy multiple services and get a discount on such bundles, an NCTA spokesman said. “When you consider that total TV viewing continues to rise year after year, consumers are clearly demonstrating that they enjoy their video service.” A better comparison would be between monthly bills and Nielsen’s ratings of shows on cable, whose quality has been rapidly improving, said industry consultant and lawyer Steve Effros. “It’s not this static comparison that the commission tries to foist on people,” he said. “They don’t look at the right thing. They don’t look at value -- they look at gross numbers."
The report shows cable “prices continue to skyrocket,” said Policy Counsel Parul Desai of Consumers Union. “We need to do something to try to control prices” and that issue “continues to be a problem,” so adding online video competitors in a way that tamps down prices is important, she said. She said the report is “especially concerning, because I see the whole TV Everywhere model as trying to stifle some type of competition from the online video providers."
The survey, though random, wasn’t done in a way where many of the largest operators are included, because it defines as “very large” a provider with more than 75,000 subscribers, said Vice President Scott Wallsten of the Technology Policy Institute. “There are so many small cable companies, while most people get service from a small number of fairly large companies the survey is unlikely to include,” the economist said. Prices also “have to be normalized for quality changes, and the number of channels is one way to do that,” he said. “If people value those additional channels sufficiently, then the implication is that quality-adjusted prices have actually fallen relative to CPI. If people do not value those additional channels sufficiently, then the per-channel price is much less relevant. Obviously the answer to that question is a huge part of the debate since it affects interpretation so radically.”