Consumer Revolt… or Rejoice?
While every customer service industry deserves intense scrutiny, many pundits have chosen cable as an easy target and use naive (and wrong) analyses to declare that consumers are somehow getting ripped off.
In a recent posting touting his new book, Gotcha Capitalism: How Hidden Fees Rip You Off Every Day and What You Can Do About It (accompanied of course by a web ad telling readers where they can buy the book), MSNBC Technology Correspondent Bob Sullivan jumps to a few erroneous conclusions that cry out for a response. While the juicy rhetoric in the column probably achieves Sullivan’s number one goal of selling more books, the juvenile analysis of why consumers are spending more for cable service today than a decade ago certainly fails Economics 101.
The simplest – and in fact true – explanation of why cable customers are spending more today is that they are subscribing to a video service that is dramatically different (and much better) than in 1998. Consider that in 1998, cable was an “analog” only service that offered 75 channels, period, end of story. Today, cable offers hundreds of channels in both analog and digital with high-definition, video on demand, digital video recorders and other interactive features that consumers love. And, besides a video package, millions of consumers now subscribe to cable’s “triple play” bundle which adds broadband Internet and digital phone service to their video package.
A great way to judge the value of a product is a simple “use vs. cost” analysis. That simple analysis for video service is something called Price Per Viewing Hour (PPVH) which measures how many hours a customer watches TV versus how much they pay for it. The good news for consumers is that cable’s PPVH decreased by 15.4% between 2001 and 2006…that is, the actual cost per hour of watching TV has dropped.
One more point — it’s ironic that Sullivan first complains about rising prices then later talks about the “addictive” power of cable. He claims this addictive power is somehow preventing consumers from exercising self control by subscribing to a different video provider. But 35 million consumers have broken through cable’s alleged mind trap because that is the number (steadily growing in fact) that now subscribe to one of the two national satellite video companies or the two telcos (Verizon and AT&T) that now are offering video service.
These facts may not make great headlines or sell many books, but consumers deserve to know the real story.
Tags: Bob Sullivan, cable prices, Gotcha Capitalism, Price Per Viewing Hour
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January 31st, 2008 at 2:24 pm
By virtue of the definition of PPVH within your post:
“A great way to judge the value of a product is a simple “use vs. cost” analysis. That simple analysis for video service is something called Price Per Viewing Hour (PPVH) which measures how many hours a customer watches TV versus how much they pay for it. The good news for consumers is that cable’s PPVH decreased by 15.4% between 2001 and 2006…that is, the actual cost per hour of watching TV has dropped.”
It really only shows that either the price has has gone down or people are watching more television. Sort of a ’slick’ measurement. So which variable has changed, is it the price, the number of hours television is watched, or a little of both? That will really provide meaning about the measurement.
Cheers,
Wyatt
January 31st, 2008 at 3:07 pm
Let me try to clarify. The PPVH measurement is not a “slick” measurement it’s simply a realistic measurement of value.
Since the number of channels available, the addition of digital video, the inclusion of HD offerings, the availability of video on demand, and features like digital music all combine to make the cable package a significantly different product than it was 10 years ago, simply measuring price indexed for inflation isn’t really a valid comparison.
Since the product has changed dramatically, we need to find a unit of measurement that remains constant over time. You have to look at how people are consuming the resource to determine its comparitive value.
Think of it this way. In 1998, you watched 10 hours of cable TV per month, and paid $30 for your package, your price per viewing hour was $3.00. In 2008, you are watching 40 hours of cable per month, and your basic cable package is $60, your price per viewing hour is only $1.50.
Studies demonstrate clearly that people are watching considerably more cable than they did a decade ago. When you account for that fact, as I did above, you realize that the price you are paying based on a comparable unit of consumption has declined.
February 13th, 2008 at 11:26 am
Could you address, though, the hidden fees aspect of cable billing? If Cable (and DBS, and LEC video, and moblie providers, etc) were more forthcoming about how much their services actually cost — about the amount of the bill — at the end of the day, I think just from personal experience that consumer anger and churn would decrease significantly.
February 13th, 2008 at 11:39 am
buckwheaton –
We’ve actually talked about exactly that and are looking at ways to explain that topic. We’re considering something along the lines of “How Stuff Works“. It would cover not only the cost of providing voice, video and internet services, but also such topics as the costs and processes for programmers to obtain rights to, produce, and distribute content.
That’s sort of a big undertaking and we’ll keep you posted as we move forward.
February 13th, 2008 at 6:10 pm
I wasn’t asking about explaining to consumers the costs borne by system operators. I’m more interested in your thoughts about more transparency in communications service marketing: My thought is that the prices that customers are offered in advertisements and the prices they are actually charged are often wildly different, and while itemizing, for example, PEG/Franchise/Receipts taxes on a bill effectively allows operators to slyly shrug and say that services are priced as promised, the customer’s check is still bigger than she thought it would be. Hence, anger and churn. To put it another way, I understand that the airlines don’t “want” to charge a $25 fuel surcharge and a $25 9/11 security fee, but I still feel ripped off paying an extra $50 for a plane ticket.
Consumers care about the costs borne by them, not the costs borne by the system operator, and might care more about the latter if operators were more transparent concerning the former.