Comcast's rate increase masked by 'drip pricing' [Pioneer Press, St. Paul, Minn.]
(Saint Paul Pioneer Press (MN) Via Acquire Media NewsEdge) Feb. 18--Another year. Another Comcast rate increase.
Comcast, the nation's largest cable provider, raised the price of cable television service in the Twin Cities for 2013 by an average of about 3.3 percent for all its packages.
While the increase was not unexpected, the more interesting story may be the reaction it got when January's bills were mailed.
In short, there wasn't much of one.
George John, an expert on marketing and consumer behavior at the University of Minnesota's Carlson School of Management, thinks he knows why.
"In marketing, we call this 'drip pricing,' " John said. "The bill gets larger, but it's hard to see the pieces. As in, 'drip, drip, drip.' "
Indeed, Comcast has been losing TV subscribers as alternatives such as Internet television have grown. But the cable company's revenue has been going up in spite of the defections.
Partially this is because of rate hikes, but it's also because Comcast keeps offering new products that hook customers in. And it's these new products, including phone service, broadband Internet and, most recently, home security and monitoring, that further obscure pricing for consumers.
It also helps that the cable giant has a virtual monopoly in most markets it serves and that more high-demand live programming, such as sports, has moved to pay-TV and can't be replicated on competing Internet TV services like Netflix or Hulu.
In John's "drip pricing" model, customers get an initial price, but then
further costs are added on, making it difficult for the shopper to figure out what he or she is paying for. The bottom line on the bill, however, goes up.
And this model doesn't apply only to cable companies. Other services that bill on a monthly basis do it, too.
Since most cable customers subscribe to more than one product, trying to decipher what part of one's monthly bill belongs to just cable television can be "bewilderingly complex," said John, who also is the business school's associate dean.
The impulse is to just give up trying.
"People are less able to comprehend what's going on. They (the cable companies) play all these pricing games," he said. "And you can't get your facts right because your head would explode.
"For all these reasons, I'm not surprised there's so little pushback to cable price increases," he said.
Comcast spokeswoman Mary Beth Schubert said the 2013 price hike was announced to Comcast customers in their bills in November.
And yes, most Twin Cities Comcast customers take more than one of its four products, often "bundled," ostensibly at a discount, but again, obscuring the price of each product.
Comcast steadfastly has declined to reveal how many Twin Cities customers bundle these services and in what categories.
The Philadelphia-based cable provider -- the nation's largest -- continues to make investments in its network, and it must pay for programming cost increases, particularly sports programming, Schubert said.
Sports programming for all cable companies has risen by an average of 16 percent total over the past two years, according to telecommunications consultancy SNL Kagan.
Schubert said Comcast has enhanced the value of its service by offering more programming to watch on more devices -- on your home TV, your laptop, tablet computer and smartphone -- and in high-definition, too.
Furthermore, it isn't like cable is alone in raising its prices this year.
Satellite service DirecTV announced a price hike on Feb. 7 that will raise its rates by about 4.5 percent this year, while the amount it pays to programmers and cable TV channels will climb by 8 percent.
"The biggest chunk, more and more as time goes by, is sports," DirecTV spokesman Darris Gingeri said.
Dish Network did not raise rates last year, but this year it told customers that they will pay $5 a month more on core English-language programming packages, plus a $1-a-month increase on DVR fees for older machines.
None of these explanations impress Professor John much.
The argument that programming costs are rising is suspect, he said, because it's hard to know what's going on in the negotiations.
Also, cable companies are creating their own programming, he added. Comcast, in fact, this week bought the remaining 49 percent it did not already own of NBCUniversal, and its various TV networks, from General Electric for $16.7 billion. In effect, it is now paying itself for some of its own programming, he said.
John added, however, that raising prices isn't always unreasonable.
In telecommunications, history has shown that prices have risen, but so does service levels and the ability to do more things, he said.
Take cellphones. Over time, John said, the devices got smaller and they gained the abilities to do more things -- remember when there were no cameras on a cellphone
We consumers believed they were worth more and bought them. Now there is a cellphone for almost every man, woman and child in the United States and about half are smartphones that cost $40 to $50 a month to operate -- or hundreds of dollars without a service contract.
The same was true for cable TV in its early years, and its subscription rates climbed, too. But the marketplace appears to be saturated -- and monopolized. "They've hit the wall," John said.
In fact, Comcast, like many cable companies, has been losing subscribers. Last year, the company lost 336,000 video subscribers, leaving it with 22 million video customers.
But overall, aside from TV, the company gained 1.5 million additional customers because more people bought high-speed Internet and phone service, boosting Comcast's total for all three products to 51.3 million.
For all of its cable communications operations -- which include video, Internet, video, business services and advertising -- the company saw 2012 revenue growth of 6.4 percent to $39.6 billion.
Comcast's total revenue, which includes its share of NBCUniversal, last year grew 12 percent over 2011 to $62.57 billion, and its operating income jumped 13.6 percent to $12.18 billion.
The company points out that its hemorrhaging of video customers slowed last year.
So the cable market may be saturated, and, normally, consumers could expect at this point to see a ferocious price war, John said. But there hasn't been a lot of effective competition to drive down prices.
Even Internet TV -- think Netflix or Hulu -- isn't much of a threat yet. Only about 5 percent of Internet-enabled homes used the Internet to watch TV programs in February of last year, up from 2 percent in October 2011, a Nielsen report said last summer.
And cable companies are fighting back by launching their own versions of Internet TV, like Comcast's Xfinity service.
Regulation hasn't worked either. There is nominal oversight on cable's base prices and franchise agreements, but the industry operates essentially unregulated, John said.
And finally, there's us. We pay -- grudgingly, perhaps. "We're spoiled," John said.
We now have 200 cable channels instead of 20, or we get high-definition video channels instead of regular and pay for them, even if we don't watch all of them, he said.
While studies have shown that most people don't watch more than a dozen or so channels regularly, just the availability of more channels lowers our resistance to price hikes, John said.
"When we get expansion, we tend to tolerate price hikes," he said.
Leslie Brooks Suzukamo can be reached at 651-228-5475. Follow him at twitter.com/suzukamo.
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