How High Can Cable Bills Go?

The cost of cable television is already high, and avid viewers are being warned that more price increases are on the way. Cable industry advocates are placing the blame squarely on local television stations.

Dire Predictions

A group of satellite and cable companies make up the American Television Alliance, and this group is predicting the retransmission fees currently charged by local stations may cause a 500 percent increase in cable bills within five years. A June 26 news release contained remarks from New York's SNL Kagan TV and Radio Finance Summit stating that in the near future, satellite and cable companies may be forced to pay up $6 per subscriber to over-the-air broadcasters. The average current per-subscriber cost is around $1.

An American Television Alliance spokesperson, Trent Duffy, said he was saddened but not surprised by the prediction of drastic price increases for what is essentially free television. He also stated it could become worse if Congress does not act to improve old laws that allow the situation in the first place, and it is not fair for viewers to have to shoulder the cost.

About Retransmission Fees

Even though the signals used to transmit television shows are free, a 1992 change made by Congress allowed broadcasters the choice of negotiating with cable services for retransmission fees. Most cable companies did not like this idea, making retransmission fees a rarity well into the 2000s. The concept has gained a great deal of traction in the last few years due to a drop in ad revenue. SNL Kagan predicts retransmission fees will reach nearly $10 billion by year 2020. The increasing incidents of disputes between cable operators and local channels over these fees has led to several channel blackouts and bitter feuding.

Effect on Consumers

Regardless of astronomical retransmission costs, most people are unwilling to spend 500 percent more on cable service. Currently, the average cable bill is around $65 per month. The predicted increase would push that average to $320 per month. The continuing tension between providers and local television channels does present speculation on how much consumers are willing to pay before cancelling service. Satellite and cable companies are losing premium subscribers at record rates, and cord cutters are flocking to alternative offerings that allow more choice for a lower price.

Additional Factors

Local retransmission issues are causing a ripple effect across the pay television universe as higher fees are being demanded from large media conglomerates. NBCUniversal, 21st Century Fox and Walt Disney own large groups of channels, which provide leverage in increasing affiliate fees. Research released on Monday indicates that by 2020, the nine biggest media companies may collect around $68 billion in affiliate fees. This is in comparison to the $43 billion in fees collected in 2014.

Michael Nathanson, analyst for MoffetNathanson, stated that 2014 was an important turning point for media companies because it was the first time affiliate fees topped advertising revenue. He said the fees now account for half of all revenue growth in the industry. He also stated that advertising took a big hit during the global recession and after seeing a brief recovery is now only growing at single-digit rates. Nathanson attributes this to a large movement away from standard television viewing to online, streaming and other mediums. Many people also engage in time-shifted viewing to accommodate busy life schedules, watching shows several hours or days later and skipping over the commercials.

While it is not possible to predict exactly what will happen in the next five years, it is clear that the cost of television is on the way up.