Millions of television viewers who’ve ditched the cable company for Internet TV services might be feeling a bit nostalgic, but not in a good way. One by one, prices on many services are creeping up, and suddenly they don’t look like such a great deal.
Seems like old times, doesn’t it?
Services such as Sling TV, DirecTV Now, YouTube TV, and Sony’s PlayStation Vue act like virtual cable companies, delivering standard TV channels over the Internet. They let you get rid of cable entirely or allow you to augment a basic cable package with some extra channels and a manageable monthly bill.
But these virtual cable services are getting costly, with price increases over the past year that range from $5 to $15 a month. Throw in a subscription to some other streaming networks like Netflix or CBS All Access or HBO Now, and our household viewing budgets are creeping back toward the stratosphere.
The trend began modestly enough last year, with $5-a-month price hikes from YouTube TV, Sling TV, and DirecTV Now. Then in January, Hulu’s live TV streaming service upped its price $5 to $45. In March, DirectTV Now imposed yet another increase to its basic service — the second within a year — adding $10, to reach $50 a month, while reducing its channel selection to 40 from more than 60.
Also in March, FuboTV, a streaming service that carries lots of sports programming, jumped from $45 to $55, but in this case, subscribers got more channels, such as CNN and TNT. YouTube TV followed that in April with its second hike in just over a year, a $10 boost to $50 a month, while adding several channels, including HGTV and Food Network. And in May, Philo, which touts its ultra-low price, plans to boost its cost for new subscribers by $4, to $20 a month.
Say you opted for YouTube TV a year ago, when it cost just $35. Now it’s $50. Maybe you’ve got the premium HD version of Netflix. That’s gone up to $16. In one year, your video bill has gone from $49 to $66. That’s a 35 percent price hike, or $204 a year. And that doesn’t count any additional channels you might use — or your broadband Internet bill.
It’s still possible to save a nice piece of change by choosing a streaming service over the typical big cable package. But more and more that’s getting to be like work. And the price hikes are a warning of things to come: Get ready for routine price increases, just like those that made you sick of the cable company.
Why the higher prices? Netflix needs to ease its debt load and pay for the many original TV shows and movies it has added to its offerings. It’s not a virtual cable company, streaming somebody else’s channels, but a premier producer of entertainment in its own right, producing its own shows at a cost that’s expected to hit $15 billion this year.
Meanwhile, cable substitutes like Hulu, YouTube TV, and DirecTV Now buy content from the same TV networks that supply traditional carriers such as Comcast Corp. And they suffer the same sticker shock as the price of programming rises. Just as the Comcasts of the cable world jack up their bills to pay these network fees, so must YouTube TV and its ilk.
Dan Rayburn, an analyst at Frost & Sullivan who tracks the industry, has published a leaked price list from one virtual carrier that he did not identify. This company pays CBS $2 per subscriber per month for CBS shows, $1.95 to CNN, and $2.58 for Fox News, while the mighty must-have channel, the sports network ESPN, gets $6 a month.
All 48 channels on Rayburn’s list add up to $50 per subscriber for the virtual cable company. And that doesn’t count the company’s other expenses, such as the broadcasting and streaming technology.
“They can’t make money on the prices they’re charging,” said Rayburn.
To be sure, the virtual cable companies were counting on another stream of money to flesh out their profits — advertising, particularly the kind of hyper-personalized ads that generate billions for Google and Facebook.
Just one problem, said Brett Sappington, a media analyst with Parks Associates. “Advertising revenue depends on scale. You have to have enough eyeballs watching to make real money on it.”
And even with millions of customers spread among the virtual cable services, the audience still isn’t large enough to generate big advertising bucks.
Just look at AT&T’s DirecTV Now. Early on, it offered promotional rates to get new customers. But DirecTV Now has changed course. It still offers newbies a $20 discount for the first three months. But then the service jumps to $50 a month for 40 channels. Indeed, the original entry-level package of more than 60 channels now costs $93. No wonder DirecTV Now is shedding customers — 350,000 since last October.
“We’re increasing our focus on higher-quality customers,” DirecTV’s owner, AT&T, said in a statement.
Remember that cable TV used to be a bargain, too. But from its infancy in the early 1980s, to today, cable prices have risen at twice the rate of inflation, according to the US Bureau of Labor Statistics. An annual survey by Leichtman Research found the average monthly cable bill in 2018 was $107 — up from $59 in 2008. This kind of price surge created the market for Internet TV, and now the prices are rising in this new market.
Maybe the traditional cable companies were greedy monopolies, but they gave you hundreds of viewing options in one convenient package. To assemble a a similar array of programs, we need a virtual cable service, maybe a premium stream such as HBO — and of course Netflix. In a few months you can add the new streaming service from Disney to get your fill of Star Wars and Marvel movies, for another $7 a month. Oh, and what about the upcoming WarnerMedia service?
And on and on it goes.
Internet TV is still a good deal for people who read a book now and then. But stitching together a comprehensive menu of choices can be pretty hard on your wallet.
“If you want everything,” said Sappington, “you have to pay an everything price.”