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NPD: Pay-TV Bills Rising Exponentially

10 Apr, 2012 By: Erik Gruenwedel

The economy and not subscription video-on-demand services such as Netflix drove 5 million households to drop pay-TV service

The average monthly pay-TV bill is projected to top $200 by 2020, up 132% from $86 per month consumers paid for bundled TV service in 2011 – despite more households forgoing premium channels, according to new data from The NPD Group.

The meteoric rise in monthly fees for access to basic TV and premium channels such HBO, Showtime, Epix and Starz is noteworthy considering the influx of lower-cost over-the-top subscription video on demand services such as Netflix, Amazon Prime and Hulu Plus.

The average monthly pay-TV bill is expected to reach $123 by 2015, according to NPD. The projected fees do not include charges for broadband, basic Internet or telephone service.

In NPD’s report, Digital Video Outlook, the company reports 16% of domestic households currently do not subscribe to pay-TV channels — a percentage that is up, with 5 million fewer households opting for premium channels due to the ongoing mortgage crisis. Regardless, total pay-TV subscriptions have not declined much, due to bulk-service pay-TV contracts with apartment complexes and homeowners’ associations that have allowed pay-TV operators to retain subscriptions in vacant homes.

“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,” said 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 SVOD and premium-TV suppliers might be the spark that ignites the necessary business-model transformation of the pay-TV industry.”

The primary reason cable households are downsizing pay-TV channels remains due to the economy and not necessarily due to SVOD, according to a separate NPD report. Indeed, the average TV household wants premium channels to be central to their viewing experience, says Russ Crupnick, SVP of industry analysis with NPD.

In fact, 59% of pay-TV subscribers preferred having one single provider for their pay-TV services, compared with 21% who desired multiple providers, and 21% who expressed no preference. Sixty-two percent of subscribers wanted premium TV either delivered by their pay-TV provider directly, or from a service affiliated with their pay-TV provider.

Only 20% of pay-TV subscribers were likely to cancel their pay-TV service, if they could get their favorite shows online, according to NPD.

“Pay-TV providers offer a convenient, one-stop shop for subscribers, and the majority of customers like it that way,” Crupnick said. “There is an open window for the industry to meet consumer needs and become to television what iTunes is to music; however, there is also a definite risk if pay-TV providers don’t capitalize on the opportunity – and soon.”


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