Stuck Between a Rock and a Hard Place, Cable Providers Must Choose Between Raising Rates or Dropping Channels

Cable customers around the country will soon begin to notice one of two things: Either their bills getting noticeably higher or their access to a variety of well-known channels ceasing.

Robert Gessener, president of MCTV and a board member for SubscriberWise, recently took to YouTube to explain the strange midyear rate increase. Networks like ESPN, Fox Sports and Viacom have dramatically increased their prices, he said, causing some providers to jack up their rates while others refused to pay, thus losing the ability to offer those channels.

“For the first time in the history of the cable industry, cable TV companies are dropping networks owned by a large content company,” Gessener explained. “More than two dozen cable companies representing almost a million TV homes recently stopped carrying all of the networks from Viacom, the owner of Nickelodeon, MTV, Comedy Central, Spike and a dozen other channels. That is a big deal because it has never happened before.”

According to Gessener, seven companies control 95 percent of television networks in the United States. These companies are powerful, and make cable providers include all of their channels on basic cable.

“I would like to split up these channels and offer lots of smaller options for consumers, but the media owners will not allow it,” Gessener said. “They force us to carry all of their channels in order to carry the ones that we want, and that’s why basic cable is so large.”

Cable providers sign multiyear contracts with these media companies, Gessener explained, which gives them some certainty when it comes to rate increases for future years. But once those contracts are up for renewal, those companies can demand more money. Last year, four of the seven were up for renewal, and this year, the other three are, he said.

When MCTV renegotiated its contract, Gessener reported, Viacom asked for a 60 percent rate increase, leaving the cable provider with the choice to either increase its rates or stop offering the channels. According to Gessener, no matter which option cable providers choose, they will be the ones to bear the complaints from the customers, not the media companies responsible for the increase.

This puts cable providers between a rock and a hard place.

“If I don’t agree to the increase for Cartoon Network, I can’t carry TNT,” he said. “If I don’t agree to the increase for MTV, I can’t carry Comedy Central. I can’t drop one network from their bundle; it’s all or nothing.”

Competition is supposed to help the customer, and there are lots of cable providers out there. But when it comes to a channel like Comedy Central, for example, there’s only one seller: Viacom. And that means that company alone controls the price. If a provider chooses not to agree to the price and drops the channel, customers might very well take their business elsewhere.

With the rise of over-the-top content and TV Everywhere, perhaps these large media companies are worried that their stranglehold on the television industry is gradually dissolving. Right now, their content is in heavy demand, so why not make the most money while the going is good?

Consumers love solid television programming, so the need for content will always be strong. But will customers always have to buy these larger packages of channels? Or will the future bring more choice, with customers able to buy the channels they want for less instead of being forced to pay for a lot of channels they’ll never watch?