Wednesday, March 3, 2010

Cable TV Economics 101: Greed is... BAD!!!

photo by muffet

Content providers like Fox, Scripps Networks (owner of the Food Network) and now Disney (owner of ABC) are demanding more money from cable companies.  Cable companies are trying to fight the rate increases but they will eventually cave to the content providers demand.  Where are cable companies going to get the extra revenue that is required to pay these fees?   Are they going to take the money from their profits and give it to the content providers?  I doubt it.  The more likely result is that the cable companies are going to end up charging the Cable TV consumer more.

Cheaper TV take:  Let's follow the logical path here.  Cable companies have to pay more so they have to charge more.  In a bad economy, people are looking to save money, not pay more for what they currently have, so I believe demand is going down.  With all of the entertainment options now available on broadcast TV and on the internet, one could say supply is going up.  Economics 101, if supply goes up, and demand goes down, the price for TV entertainment should be going down.  Broadcasters and cable companies are doing the exact opposite and raising prices.  I believe this will lead to more people defecting from Cable TV.

Let's throw out some numbers here.  If broadcasters like ABC and Fox raise rates 50%, but in doing so, cable end up losing 10% of their cable subscription base, the broadcasters still come out ahead.

Before rate increase:  100,000,000 cable subscribers x $1 cable fee = $100,000,000

After rate increase: 90,000,000 cable subscribers x $1.50 cable fee =  $135,000,000

So who are the losers in this equation?  Cable companies and consumers.  Cable companies will lose subscribers and won't be getting any additional revenue to make up for the loss.  Consumers that stay with cable will end up paying more for the same content.