Pay-TV bills are on the rise in the U.S., with the average pay-TV subscription for basic service and premium-TV channels reaching $86 in 2011, according to NPD market research. Pay-TV rates have increased an average 6% per year as TV licensing rates have risen and household income has remained flat.
NPD, in its “Digital Video Outlook” report, forecasts average monthly pay-TV bills will reach $123 by 2015 and $200 by 2020 if market factors continue on their current path.
Sixteen percent of U.S. households don’t subscribe to pay-TV services at present, according to the report, with a sharp rise in housing vacancies due to the housing crisis having led to 5 million fewer US households viewing pay-TV services. Offsetting the increase in housing vacancies, bulk subscription deals with apartment complexes and homeowner’s associations have lead overall US pay-TV subscriptions to decline by only a small amount.
“As pay-TV costs rise and consumers’ spending power stays flat, the traditional affiliate-fee business model for pay-TV companies appears to be unsustainable in the long term,” commented Keith Nissen, research director for The NPD Group. “Much needed structural changes to the pay-TV industry will not happen quickly or easily; however, the emerging competition between S-VOD and premium-TV suppliers might be the spark that ignites the necessary business-model transformation of the pay-TV industry.”
Pay-TV “cord-cutters” are canceling their subscriptions primarily due to economic considerations, though they’re still accessing TV programming from free-to-air broadcast, free Internet TV and lower-priced subscription video-on-demand (S-VoD) providers, such as Netflix, according to NPD’s “Entertainment Trends in America” report.
“Despite the plethora of OTT options for movies and TV, most consumers want their pay-TV providers to be central and relevant to the acquisition and viewing experience,” Russ Crupnick, senior vice president of industry analysis, stated. “In fact 59 percent of pay-TV subscribers preferred having one single provider for their pay-TV services, compared to 21 percent who desired multiple providers, and 21 percent who expressed no preference.”
But at what cost? These pricing trends suggest the current pay-TV model may be its own worst enemy, at least over the long term. How long will consumers continue to pay these rising fees for pay-TV?