Video Subscription Price Hikes Aren't a Problem, Yet, Analyst Claims

Are complaints about ever-growing video subscription prices overblown? At least one equity analyst thinks they are, at least for the moment.

Programming-rate increases keep driving subscription TV prices higher, but other consumer expenditures are rising faster, according to Sanford Bernstein senior analyst Todd Juenger. That's a bit like saying people shouldn't claim about continually rising prices because some products they buy are inflating faster. 

From 2005 to 2011, the price of pay TV has grown 4.7 percent on an annual basis, faster than the broader inflation rate. The consumer price index, for example, rose 2.4 percent annually over that period.

Juenger points out that pet food prices rose 4.8 percent, a New York City subway ride grew seven percent, a gallon of gas grew about eight percent and a cup of coffee grew nearly 16 percent, Juenger argues. 

Few consumers are going to buy that argument. For starters, some of those products are used only by some people. Video subscriptions and gas are used by most people, and represent significant amounts of money, compared to other purchases of smaller amounts that are spread out over a month's time. 

In other words, gasoline and video subscription bills are large and noticeable. One way of looking at matters is that, every 30 days, subscribers get a highly visible reminder of how much they are paying when they get their bills. For that reason, service providers long have worried about "sticker shock," especially with the advent of triple play services. 

Also, video subscription prices have tended to rise by more than the overall rate of inflation every year, for decades, not just for limited periods of time. 

Also, as Juenger and all studies have shown, any single viewer watches only about 10 to 14 channels, making all the rest seem like waste, even if suppliers would say all that "waste" means a more affordable product. 

That isn't to say a shift to an a la carte retail pricing model necessary would save consumers money. All other things being equal, consumers probably wouldn't save money. But that's the point. Over time, all other things will not be equal. 

The existing cost structure of the video business will be disrupted. The analogy, for those of you with telecommunications backgrounds, is the level of profits and profit margin in the old monopoly business, compared to the level of profits and margin in the competitive business. 

The cost structure of the business has changed. The same thing will happen to the video entertainment business, eventually.