BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR PRIVACY & COOKIE NOTICE
X
HOME > OUR THINKING > Media & Communications > BLOG

25 Years Of Declining Pay-TV Affordability

The following post is part of our Media & Communications (SNL Kagan) solutions. To learn more about this research, please request a call.

Along with the rise of over-the-top services, weakening legacy multichannel video affordability typically is seen as the main driving force behind cord cutting. Measuring the evolution of the average multichannel ARPU against annual inflation and real median income since 1990 strengthens this thesis.

The annual rate of increase of the average monthly multichannel revenue per subscriber — a solid substitute for the average multichannel video rate — outpaced the growth rate of the Bureau of Labor Statistics' consumer price index in all but three years between 1990 and 2015. On Feb. 22, 1994, an FCC-imposed cable rate cut averaging approximately 7% sent cable ARPU into a tailspin, resulting in a significant annual drop for the metric. The effort was short-lived. On May 25, 1995, the House Commerce Committee was voting on a bill that would ultimately lead to deregulation of cable rates.

The annual rate of increase of the average monthly multichannel revenue per subscriber outpaced the growth rate of consumer price index in all but three years between 1990 and 2015.
Perhaps even more telling is the dichotomy between the trajectories of the multichannel ARPU adjusted for inflation and the real U.S. median income over the period. Data from the U.S. Census Bureau shows that the median household income, adjusted for inflation, has stayed relatively flat in the last 25 years. For more perspective, in 2015, the real U.S. median income — even on the back of the metric's largest annual gains since record keeping began in 1967, up 5.2% — remained below levels seen at the turn of the millennium.

Meanwhile, the nominal average multichannel video revenue per unit was growing at a 5.3% CAGR. Even adjusted for inflation, the data shows the metric growing at a 3.7% CAGR. On an annual basis, and in inflation-adjusted dollars, this means multichannel households in 1990 — virtually all subscribing to cable at the time — were spending an average of $575.36 per year for video service. By 2015, this figure had grown to $1,159.54.

Real annual multichannel video ARPU vs. real median income

To be fair, the typical multichannel video package evolved greatly over the analyzed period, with the amount of programming included growing exponentially — a major selling point for multichannel video distributors over the years. By the end of the 2000s and the ascendency of affordable broadband-based video alternatives and their impact of video-consumption habits, this value proposition had lost some of its luster.

Multichannel households in 1990 were spending an average of $575.36 for video service. By 2015, this figure had grown to $1,159.54.
The disconnect between the average amount of content sought by customers and rising multichannel rates became particularly acute following the aftershock of the 2007-2008 economic downturn and its reverberations through household finances. From 2008-2012, the real U.S. median income fell each year, from $57,430 in 2007 to $52,661 in 2012. In the meantime, the multichannel ARPU was logging annual low-digit gains, rising from $75.57 to $88.26.

The increasing loss in multichannel video affordability partly explains the multichannel universe's subscriber decline of the last few years. In 2013, the sector logged its first-ever customer losses. The decline accelerated in 2014 and then took a turn for the worse in 2015, with cable, DBS and telco losing an aggregate 1.1 million subscribers. 

Subscribe to Insights
Dec 10, 2015
Blog
Dec 08, 2015
Blog