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Cost Of Dog Food Rising Faster Than Pay TV: Analyst

Programming-rate increases keep driving subscription TV prices higher, but other consumer expenditures -- including the cost of caring for a dog -- are rising faster, according to one Wall Street analyst.

From 2005 to 2011, the price of pay TV has grown 4.7% on an annual basis. That’s faster than the broader inflation rate (the consumer price index rose 2.4% annually over that period) but still lower than many items such as pet food (4.8%), a New York City subway ride (7%), a gallon of gas (7.9%) or a cup of coffee (15.9%), Sanford Bernstein senior analyst Todd Juenger wrote in a research note.

“You don't often hear of pundits warning of a pending crisis because the cost of dog food is spiraling out of control,” Juenger said.

The point of his somewhat tongue-in-cheek comparison: that pay-TV price increases have been overstated -- fed by MVPDs complaining about the issue -- and that à la carte unbundling is not a solution.

“[W]e are not arguing that pay TV pricing can go to infinity, nor are we unsympathetic to the fact that many American households are spending way too much on pay TV at the expense of things like food and clothing,” Juenger said. But the “proportionality has been overblown” because of MVPDs’ focus on the rising cost of sports rights and retrans fees, “as opposed to the rising price to consumers of pay TV.”

Pay-TV operators have repeatedly claimed that skyrocketing programming costs are hurting their businesses. The American Cable Association, which represents independent operators, has lambasted multibillion-dollar sports programming deals in particular as threatening their viability.

“Cable or satellite TV service consisting of a few dozen channels at a reasonable price is a great deal," ACA president and CEO Matt Polka said in a statement Tuesday, commenting on Major League Baseball's $12.4 billion deal with Fox and Turner. "But insane sports contracts are destroying a business model that once balanced the interests of consumers, pay-TV operators, programmers and advertisers."

Critics of the pay-TV bundle have proposed an à-la-carte model to cut the price of subscription television. But that wouldn't work, Juenger argued: “It has been shown the average viewer really only spends meaningful time on 10-14 channels. In a world where they could choose networks one by one, they would end up paying close to the same amount of total price each month, for a greatly reduced variety of service.”

That’s bad for consumers and pay TV providers, and it’s “not even good public policy (assuming there is some public good that comes from having more TV choice/options/diversity for consumers),” the analyst wrote.

For pay-TV providers, according to Juenger, the real issue is that they’re unhappy with the leverage that media companies have -- cable and satellite operators are forced to take “all” channels, or they would be at a competitive disadvantage in the market. But that position is hypocritical, he said, given that MSOs themselves are exploiting their structural advantage with broadband by increasing pricing with usage-based consumption plans.

As for the argument that the next generation of consumers will be “cable nevers” and watch only Internet video, Juenger judges the odds of that happening to be remote, perhaps only in the unlikely case that a critical mass of over-the-top options emerges.

“We believe it would be foolish to bet against the stubborn relationship of Americans with their TV, and the intransigence of the incumbents who provide it,” Juenger concluded.