Goodbye free TV. You may soon see a bump in your cable bill coming. Traditional broadcast networks CBS (CBS) and Fox are now telling cable companies that they will be unable to carry their programming unless they receive a slice of cable carriers ad revenue. Fox was reportedly asking for $1 per subscriber from Time Warner Cable (TWC). And who do you think those charges will be passed along too? That’s right!…. you and I. I think that we will see a significant increase in cable and satellite bills over the next decade as networks demand higher programming fees. Prices could rise 7-8% per year as companies pass higher costs along to consumers.
Why are the broadcast networks looking for cable dollars? The business model is broken for traditional media. Until recently ABC, CBS, Fox and NBC used to support their operations through advertising revenue. As cable programming has become more popular, market share has shrunk for the Big Four. The shrinking market share has led to lower ad revenues as ad dollars have moved to cable and online. Now they are seeking to make up for lost ad revenue by getting a piece of the cable subscription pie.
Here are a few changes that I think will take place in the near future.
(1) You will see more cable providers seek to acquire network stations such as the NBC acquisition by Comcast (CMCSA). I wouldn’t be surprised to see Time Warner Cable make a play for ABC from Disney (DIS). This would allow cable companies to save on programming costs over time and gain a competitive advantage over rivals. They could offer the channels to competitors at a higher cost thus making their prices appear discounted. Any competitor that didn’t carry the channel would be at a severe disadvantage.
(2) Cable companies will be forced to unbundle programming. We are currently forced to pay for many channels that we don’t even watch. For example I never watch HLN, Fine Living Network, REEL, Travel Channel, TRU, NASA, Current and JewelryTV but I am forced to pay for these channels anyway. That’s just a few of them. I could come up with at least 50 more channels I never watch. I think it is only a matter of time before the cash-strapped consumer is fed up and looks for other options. Satellite and cable companies could slash programming fees by offering consumers content that they actually want to see.
(3) Traditional broadcast networks will have to utilize streaming media for additional ad revenue. Maybe the broadcast networks join up with the rumored Apple (AAPL) venture to offer television subscriptions over the Internet.