Pay-TV providers send mixed signals on pricing

Despite an influx of promotional pricing offers from telco, cable and satellite television providers, rates have gone up across the board. The increases have come as programming fees and operating costs have increased; however, they are largely incongruent with the economic climate of unemployment and cost-sensitivity, according to Bernstein Research senior analyst Craig Moffett.

For the past several months, service providers have been realigning their marketing messages and discounting the price of their bundles to appeal to budget-conscious consumers. Last week, Verizon Communications instituted $10 to $30 price cuts for the first three months of a 12-month triple-play or double-play service, as well as free high-definition digital video recorders. In November, Qwest began offering promotional pricing for a year of broadband service, and last month, AT&T reactively offered 12-month discounts to customers looking to cut prices or services.

At the same time as these promotions, rate card prices have continued to quietly increase. AT&T’s U-Verse, Dish Network, DirecTV and all the major cable operators recently raised prices, according to Moffett. AT the Consumer Electronics Show, Dish Network introduced a monthly price of $9.99 to new customers who sign a two-year contract. While the satellite operator said it would freeze prices for its very cheapest packages, it raised prices by 6.1% and 4.7% on its two highest-tier packages, respectively. On the cable side, Bernstein’s random sampling of price increases reported by localities around the country for Comcast and Time Warner Cable averaged about 4% for video overall.

AT&T also increased the price of additional U-Verse non-DVR receivers by 40%, movie bundles by 33% and its Spanish package by 50%. Moffett noted that Verizon has yet to make FiOS price increases this year, although last year saw a rise of 12% in FiOS TV costs. Last week, Moffett lowered expectations for both AT&T and Verizon, noting a much-tougher-than-expected 2009.

“For all those headline-grabbing promotions, the real recent pricing activity remains up, not down,” Moffett said. “In the midst of economic meltdown and extremely low consumer sentiment, Dish Network, Comcast, Time Warner Cable, AT&T, and Cablevision have all recently announced significant price increases. Generally speaking, these increases are in-line with the 5 to 6% price increases implemented at the beginning of 2008, despite drastic changes in consumer household finances and spending ability.”

In any other economic climate, increased promotional activity coupled with price increases would be the right combination for increased churn. In today’s economic downturn, however, service providers can get away with it – maybe even benefit from it. Churn rates are at an all-time low, according to Moffett. This is not because of pay TV providers’ promotional pricing, customer service or marketing, but rather the collapse of the housing market.