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.

Right on the front page of NCTA’s website, down in the lower right corner, we run a little feature called “Statistic of the Week.” Since cable prices are always a hot topic, and since I’ve made some reference to the notions of price and value, I thought I’d highlight what we’ve run recently.

This week it was:

Cable’s PPVH decreased by 3.3% on a nominal basis between 2001 and 2006 and 15.4% on a real, or inflation -adjusted basis

And this was footnoted as follows:

[PPVH = Price Per Viewing Hour = the price of a cable subscription divided by the number of hours per month spent viewing basic cable networks]

Source: Average basic cable rates from SNL Kagan divided by average basic cable network viewing time from CAB

Fine. What the heck does this mean? It means that how much you watch cable television ought to be factored into price and value. Any discussion of cable prices ought to be put in context. NCTA doesn’t think that the nominal price is the most accurate measurement. It’s not like a loaf of bread or a carton of milk; over time the service that cable offers to customers changes and the way people use that service changes.

The FCC is quick to point out that the price per minute (which is a quantity-adjusted metric much like PPVH, the price paid divided by the amount consumed) of wireless service has been declining, yet the Commission fails to acknowledge or discuss PPVH. Consumers are paying more for wireless service and they are paying more for cable service, but they are also consuming (talking/viewing) more of both services too. They must be finding value and quality in each of these services.

As I mentioned in my first post, I’ve been a cable customer for most of my life. I pay more today than my parents paid back in the early Seventies. But I get a lot more channels, the programming is more diverse and is of a higher quality and I now spend more of my time tuned to more cable networks than I used to.

We sent a letter to the FCC a year ago. In it, NCTA’s President & CEO Kyle McSlarrow noted that today’s marketplace is quite dynamic and there are better ways to measure price:

Although it’s short-sighted to focus on video pricing alone, there are more obvious ways to measure prices that actually stand up to scrutiny. It is useful for consumers and policymakers to know whether price increases are or are not accompanied by corresponding increases in the quantity and quality of the service or goods being sold. That’s why it is important to analyze prices not only on an inflation-adjusted basis but also on a quality-adjusted basis.

One way is to simply measure the price per channel as the FCC has done for some time. And the data clearly show that the real price per channel over ten years has gone down, not up.

He also talks about PPVH and you can read the whole thing for yourself. I’d also recommend looking at this study by Professor Steven S. Wildman of Michigan State University. He argued that the “real (inflation-adjusted) price of cable service divided by the number of hours spent watching basic cable programming” was a good way of measuring prices. If you pay 10 bucks for service and watch 10 hours, then you paid a buck an hour. If you pay 20 bucks and watch 60 hours, then you paid 33 cents an hour.