For US payTV subscribers the ESPN bouquet of channels is in the basic package, they have no choice, they just have to pay for it. ESPN is owned by Disney, which owns other assets such as ABC Television Network, cable networks including ESPN, the Disney Channel, SOAPnet, A&E and Lifetime, 277 radio stations, music and book publishing companies, production companies Touchstone, Miramax and Walt Disney Pictures, Pixar Animation Studios. So its virtually impossible to say no to Disney given their clout in the industry.
ESPN has agreed to pay a 70 percent increase in fees to the NFL (National Football League) for an eight-year agreement to broadcast games, and indications are that the NFL will also be able to bump its CBS, NBC and Fox deals 60-70 percent. This just gets passed directly through to the PayTV subscriber. ESPN costs between $5-7 per subscriber. In the TV industry everything is negotiated so the rate varies between PayTV providers based on the number of subscribers and ability to negotiate.
The current fee of $5-$7 for the ESPN channels could become $8-$12. Channel fee inflation will also hit other channels, e.g. Fox (News Corporation) will also pass on the price hike in its channel fees. Some estimates claim the basic cable subscription will be pushed up from $30-$40 to $40-$55 over the next 3 years, once the full impact of the charges is felt across the whole ecosystem. NFL raising its fees 70% to ESPN is just one of a number of content inflation factors raising channel fees. The NFL are doing this in part fund the crazy salaries of people who play with balls for a living, and perhaps also in part to fund their direct to consumer (Over The Top) business.
25% of the US population live on less than $25k per year, that leaves an average personal disposal income (PDI) for a family in that bracket of only $3k, which means basic cable is over 20% of their PDI. Given the choice of internet access for the children or TV, the choice is obvious, they cut the TV cord. For me, I remain frustrated at the lack of control, I’m forced to pay for content a do not want nor like. Please note PayTV providers, this type of behavior is not called customer service, rather customer dis-service.
My Verizon FiOS triple play is coming up for renewal, I’m seriously thinking about whether its time to cut the cord and just subscribe to Amazon Prime and Hulu+. Yes there are compromises in the available content, but we have hundreds of unwatched programs on the TiVo so loosing access to a few of them will not seriously impact our experience.
I’m currently updating the TV Delivery Evolution Report and the research is proving quite interesting. The industry is entering a tipping point. No matter what the PayTV public relations and analysts feed to the media to claim, “everything is OK, TV cord cutting is a myth.” PayTV customer surveys show subscribers are restless with the current situation, and the PayTV providers’ lack of response to their customers’ concerns will result in significant churn over the next 3 years. We are going to see PayTV penetration begin to drop in the US.
A few data points:
- From Nielsen, the anticipated TV household penetration for 2012 is in decline. The estimated percentage of US homes with a TV set fell to 96.7 from 98.9%.
- From SNL Kagan, nearly 4% of occupied US households will employ over-the-top (OTT) video services in lieu of subscribing to a multichannel video package at the end of 2011. Equivalent to 4.5M households.
Examining 2010 total PayTV households of 100M: Telco IPTV subscribers stood at 7M, Cable stood at 60M, and Satellite at 33M. It will be interesting to see how 2011 shapes up, some initial indications show a drop of up to 2% to 98M total PayTV households, with Cable hit the hardest. Its hard to get specific numbers as they’re now hidden in total subscribers which includes internet and voice, there’s increased unwillingness to break out PayTV household numbers.
When an ecosystem becomes detached from its customers, as payTV has become, forcing some customers to pay for what they do not want, changes happen fast, as we’ve seen in video rental, print media and fixed telecoms industries. The PayTV industry needs to get its act together fast and start listening to its customers and responding to their needs (its called customer service). The studios are not its customers, its the people paying those monthly PayTV bills. PayTV providers must focus on meeting their customers’ needs, else their customers will simply vote with their feet.