Duh: Analyst Says TV Programming Price Increases Are Unsustainable And “A Train Wreck In The Making”

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Your monthly cable or satellite bill just keeps going up — that’s the reality we all face. And while consumers are getting squeezed by price increases, they’re not alone: Bernstein Research analyst Craig Moffett sees a reckoning coming, as increases in the cost of programming are also outpacing cable or satellite providers’ ability to support them.

Over the last five years, programming costs at DirecTV have risen 32 percent. But perhaps more importantly, those increases are accelerating, with costs rising upwards of 10 percent year-over-year. Meanwhile, income growth among U.S. residents has actually been negative during that time. So, according to Moffett, “Something’s gotta give.”

He writes:

For years we’ve argued that… online video won’t overtake the traditional linear model any time soon. But we also recognize that soaring programming costs are the best counter argument to the stability of the status quo. At 10% per year, the $40 wholesale cost of goods sold today would more than double, to about $80, in another seven years. Incidentally, the monthly retail ARPU of Pay TV service today is about $80. This is a train wreck in the making. Again, something’s gotta give.

Moffett’s research report cited the following chart, which shows the increase of programming costs at satellite operator DirecTV over the past five years:

According to Moffett, part of the reason that per-subscriber programming costs are rising at DirecTV is that subscriber growth is flat to down. Meanwhile, programmers continue to ask more for their content, with no signs of letting up. That’s constraining margins, which could force DirecTV and others to make a choice between increasing the rates they charge subscribers or giving up on content. Either way, it’s not a pretty picture, particularly for the satellite providers who don’t have higher-margin broadband or voice services to fall back on.

That’s one reason why Dish is looking at rolling out over-the-top live TV and satellite broadband services. And it’s a reason why other providers — like Comcast and Time Warner Cable — are experimenting with cheaper bundles of programming that don’t include high-cost networks like ESPN. Because pretty soon, if they don’t, consumers won’t be able to afford what they’re offering.