Is Television Too Expensive?

• by Gary Holmes , April 13, 2015

Every time my wife and I discuss household spending, her first idea is to cancel HBO.  This has been her opening gambit so many times it’s almost become a tic.

I don’t want to imply that the $200 we spend annually on HBO is chicken feed, but if we really wanted to save $200, I’m sure we could do better than that by comparison shopping our many insurance policies (health, homeowners and auto), better insulating the house, or switching away from all that organic produce.

It’s not as if we never watch HBO.  We’ve devoured “True Detective,” laughed at “Veep” and made generous use of our HBO-GO account.  I don’t think my wife has any particular animus against HBO; it’s just that the size of that cable bill really sticks in her craw.

She’s not alone.  Last year’s American Consumer Index Survey revealed that Americans hate cable companies and Internet service providers more than any industries.  That’s a lot of hate for a sector that doesn’t pollute the environment, manufacture weapons of mass destruction or foreclose on our houses.

Those of us who remember free TV resent paying for cable at all.  But in fairness, no one’s putting a gun to our heads. Cable television is a discretionary expenditure.  There are about 10 million homes that watch TV the old-fashioned way: over the air.  I actually know a family like this. Of course they watch “Mad Men” when it comes out on Netflix and skip cable sports altogether.  And because they don’t have a DVR, they miss their favorite shows if they’re not home.  I know, it’s like they’re the Cleavers -- or the Flintstones.  But they survive.

If they so desired, cable companies could make the same argument that Whole Foods does: Sure, the sticker price is higher, but the quality is so good that it’s actually a better “value.”  With cable you can get that DVR and a huge assortment of networks and programming. 

There is some truth to this argument. When TV was “free,” it wasn’t nearly as good or convenient, and people didn’t watch as much of it as they do today.

But while TV is worth paying for, I’m reminded of that chart in classical economics where the demand line intersects with the supply line, and the intersection point is supposed to determine the price. For many millions, the price of television is no longer at that intersection point.  The unending increases in the cable bill threaten to undermine the entire business model of the business, which is getting people to watch the ads on ad-supported programs or to subscribe to premium channels. 

The problem is that once the cable bill passes a couple of hundred dollars a month, consumers get desperate to cut costs and start looking for ways out.  It’s kind of like the cost of gasoline: Once the price gets above their comfort zone, people will spend tens of thousands of dollars to buy a car with better gas mileage just to save a thousand dollars a year on gasoline.  It’s not logic, it’s emotion.

Television is suffering from another principle of classical economics: the tragedy of the commons, in which people act rationally according to their own self-interest even though it ruins a common interest and undermines the interest of the whole -- in this case, the good will of the cable consumer.  TV networks must know that exorbitant cable bills are bad for the industry, but each wants to squeeze every last dime out of the cable viewer.   Why should one network show restraint during retransmission negotiations when it knows a rival network will demand the most it can get?

Will cable go the way of the telephone company?  More than half of households no longer have or use their landline phones, the result of decades of increasing prices and indifferent service.  Maybe, but what cable has going for it is inertia and (relative) simplicity. 

The New York Times’ Emily Steel recently published a helpful guide on the numerous streaming services you could use if you did cut the cord. The piece makes clear that if you’re an average TV consumer watching 17 different channels a month, it might be a little cheaper -- but certainly not easier -- to duplicate your viewing experience on an a la carte basis. You could probably cobble together most of the broadcast networks and many of the key cable networks through a combination of Sony’s PlayStation Vue ($50/month), Dish’s Sling TV ($20/month) and Apple TV ($20-$40/month).  You might save some money, but what a pain in the neck to juggle all these services on different devices, especially on those nights when the Internet connection is balky.

But as my wife’s preoccupation with HBO shows, purchasing decisions are not rational.  I honestly don’t know where the pain point is for us to cut the cord, but it does exist, even if it’s more aggravation for not much savings.  All I can say is, I hope we never reach it, because I enjoy sitting back and watching TV with as few devices as possible.  Please take pity on us, oh Lords of Television!