The FCC yesterday released its latest pricing data on pay-TV services. In the twelve months leading up to January 1, 2011, the average cost for “expanded basic” service increased 5.4% across the country to $57.46 per month. The price for expanded basic service is defined as “the combined price of basic service and the most subscribed cable programming service tier excluding taxes, fees and equipment.” Oddly, however, the FCC also points out that average costs increased slightly more in competitive communities than they did in non-competitive communities. The difference was 5.7% to an average monthly cost of $58.47 in competitive communities versus 5.2% to an average monthly cost of $56.82 in non-competitive communities.
The findings here are highly counter-intuitive. Why would pay-TV service cost more in communities with reasonable service provider competition?
There’s no simple answer to that question, but there are a few critical things to point out about the FCC data. First, the FCC isn’t including equipment fees in these numbers. Equipment fees went up 3.7% in competitive regions during the same twelve months, while they went up at a higher rate of 5.4% in non-competitive areas. Those fees are, oddly, still slightly slower in non-competitive communities ($7.05 per month versus $7.22 per month), but the gap is closing, and the trend suggests that equipment costs could offset other rate differences.
Second, I would bet that the competitive regions surveyed in the FCC’s study are metropolitan areas where cost of living is higher than average – thus the ratio to cost of living may paint a different picture than the raw data suggests. (More expensive cities have more expensive services.) I don’t know this, but it’s a reasonable guess given that competition tends to show up where populations are densest.
As an aside, the FCC does note that while TV service prices went up 5.4% in the twelve months leading up to January 1, 2011, the Consumer Price Index only increased by 1.6%. (The numbers were much closer – 3.7% and 2.5% respectively – the year before) So pay-TV services are eating up a larger chunk of the household budget.
Third and finally, while costs were higher in competitive communities overall, incumbent cable operators charged 6.2% less on average in these regions. Satellite providers charged 5% more, which is what accounts for the difference. So it appears that competition at the very least has an effect on cable TV prices, if not the cost of satellite TV service.
Bottom line: the cost of TV service is rising significantly year over year. The data here would seem to suggest that greater competition doesn’t help this trend, but I think the data is somewhat misleading. There is also no accounting here for alternative TV services, which I expect we’ll continue to see more of. It’s hard to imagine that they won’t have an impact both on prices, and on subscriber numbers.
One final note, the FCC lists the average cost of expanded basic TV service as $22.35 back in 1995. It almost makes me wish I could go back to high school. That, and gas prices at 99 cents a gallon.