Cable TV companies are running scared as more and more consumers cut the cord and switch to streaming video. But that hasn't stopped pay TV providers from raising prices at a pace that's nearly four times the annual increase in the cost of living in the United States.
A recent study from the U.S. FCC found that the price of basic cable service increased an average 5.8 percent per year between 2010 and 2015. The cost of living, as measured by the Consumer Price Index, increased annually by just 1.5 percent during the same period. The cost of expanded basic cable plans grew by nearly 27 percent during that five-year span, up from an average of $54.44 a month in 2010 to $69.03 in 2015, the FCC found.
Competition, consolidation and cord cutting
Perhaps unsurprisingly, cable TV prices increased less in areas where "effective" competition exists between two or more providers. Where there is effective competition, the report says, prices are lower by 6.4 percent, a "statistically significant" difference.
Meanwhile, the pay TV industry has consolidated, leaving consumers with fewer choices and making the market less competitive. Time Warner Cable, Charter and Bright House merged earlier this year and are now known collectively as Spectrum. AT&T bought satellite TV provider DirecTV last year and plans to eventually phase out its wired U-verse service. AT&T also wants to buy Time Warner, a move that wouldn't eliminate a pay TV provider but would give the combined companies control over some of the most popular networks in the country, including CNN and HBO.
To be fair, cable companies have greatly expanded the number of channels available to consumers, and they likely pay more to the networks that provide programming. For example, basic cable services offered an average of 117 channels in 2010, according to the FCC report. Five years later, consumers with basic cable had about 181 channels, and the cost per channel decreased by nearly 19 percent.
However, that plethora of channels isn't necessarily a benefit for consumers. Many cable subscribers pay for scores of channels they never watch, which drives many of them to ditch pay TV for streaming video from so-called over-the-top (OTT) providers, such as Netflix and Hulu.
According to Parks Associates, a market research firm, 63 percent of U.S. households with broadband connections subscribed to at least one over-the-top video service at the end of September, up from 57 percent at the beginning of 2015. It's not clear exactly how many consumers have abandoned cable completely, because many people who subscribe to over-the-top services use them to complement pay TV.