Putting the Cost of Comcast Cable in Perspective

For many years now Comcast Cable has been a necessary evil in my household. With few choices for television service or high-speed Internet, I have reluctantly been a customer of Comcast for over a decade. Knowing what little choice customers like me have for this service, the folks at Comcast do what any monopolist would do and charge very high rates. Although it might be surprising to some, this is not the part of Comcast I dislike the most. My least favorite part of Comcast instead is their practice of trying to hide these rates with “specials” that roll off and on with very little transparency into why my bill goes up and down so much. During the last year, my bill has ranged from $100 to $180 with little change in service. Having finally had enough, I decided recently to look at my usage to see where my money was going and use the resulting data to re-consider how much money I spend with Comcast.

My Plan

To try and put the television part of my Comcast bill in perspective, I wrote down every minute I watched television between May 9 and June 8th(which can be found here). I am a huge believer in data, using it to monitor my finances and to try and stay healthy, and felt like this exercise would be a valuable way to see how much value I am receiving from my ever-growing Comcast bill. Once the data was collected, I attempted to answer three questions related to Comcast’s business:

1. How does the price I pay to watch TV with Comcast compare to other forms of entertainment?
2. How would my bill change if the current approach of bundling channels were changed in favor of alternative pricing models like a la carte or per episode?
3. What conclusions can I draw about the future of television and what recommendations do I have for the players in the industry competing with Comcast?

Q1: Comparison to other Entertainment

For points of comparison, I went through a similar exercise with other forms of digital entertainment and calculated the same cost per hour for services like Netflix, Zune video rentals on my Xbox, and Kindle eBooks. Fortunately these were much easier to track as many of these services provide this data to customers. I also estimated the time spent at live events I have attended like concerts, sporting events and movies in the theatre, to see what kind of premium these events had vs. Comcast.

While I was going through this exercise, it did not seem like I was watching very much TV, so I expected my $95.60 Comcast TV bill to lead to a relatively high price per hour compared with the other entertainment options and indeed this was the case:

I was surprised, however, to see how high Comcast was to the other services. A full price movie ticket was only priced at a 20% premium, while the other non-live events were significantly cheaper. Netflix stands out in particular at $1.09 per hour, which is a full 84% lower than Comcast at $6.80. Admittedly this picture would look different during football season when I get more value out of subscribing to Comcast, but I would need to watch over 6x as many hours as I did this month in order for the price per hour to match what I pay for Netflix (assuming Netflix price and hours remains the same) and there are not even enough games broadcast to reach that level.

Q2: Alternative Pricing Models

For my second exercise, I looked at what my bill could look like if I paid per episode or paid per network. Both of these would feature video content being delivered over broadband to alternative devices like an Xbox, AppleTV, GoogleTV or an Internet-enabled TV. The per episode model is available today via iTunes (to an AppleTV) or Zune (to an Xbox) at $3 per HD episode, while the per network part is not, but demand for this is increasing rapidly and I would not be surprised to see this offered in the future. For the pricing of per network, I used two approaches and only applied them to cable channels as the major networks are available for free via an antenna:

Both of these models show the status quo to be extremely costly and the data suggests that I would be much better off pursuing either alternative pricing mechanism. There were, however, downsides to the alternatives as they exist today that would have to be balanced against the significant cost savings.

With the per episode model, I would be getting HD, commercial-free versions of the shows I watch most but would not be able to watch live shows including sports. During the spring and summer this is something I could get behind (since my NBA boycott continues and the Mariners have not been worth watching for a decade), but in the fall and winter with football this would be a difficult adjustment to make. Professional leagues like MLB and the NBA have begun to offer season passes de-coupled from a cable subscription and available on devices like an Xbox, so hopefully this restriction will subside over time.

The per network model is purely hypothetical at this point, but I can also see some adjustments that would have to be made if it were to come to fruition. First, it is likely that this would only be available with cable networks who are used to the per month, per subscriber model leaving me to obtain the big networks (ABC, NBC, CBS and Fox) through a method like an over the air antenna that could be difficult to implement. Secondly, this would make it much harder to watch new shows that appear on networks I don’t choose to pay for. While some of this could be made up for by adding new networks over time or with further reliance on Netflix, the practice of hearing about a show and flipping to it instantly would be no longer and would require some adjustment.

Q3: Business Conclusions and Recommendations

• This exercise made me re-consider whether the value I am receiving for my Comcast bill is worth it, particularly when compared with other forms of entertainment. I believe others would do the same if they could see how much they are paying on a per hour basis. Comcast will never offer this form of transparency (as Netflix does), but I would love to see a company who competes against Comcast directly or indirectly find a way to provide this information. Companies like DirecTV, Tivo, Netflix, or YouTube all fit into this category and it would be great to see one of them make a web or mobile app that calculates this type of data much more easily than the process I went through.
• The large gap between Comcast and Netflix is particularly interesting and suggests upside in Netflix’s future prospects as people begin to view them as a substitute for traditional television. Netflix stands to benefit from customer’s viewing them in this light (as opposed to a replacement for a video rental service) so it makes sense that they are starting to produce their own original content (a move also being pursued by Hulu and YouTube). I expect more of this to occur in the future and hope original programming on these mediums is successful in order to put pressure on Comcast to be more consumer-friendly.
• Sometimes overlooked in talk of alternative models like per episode or per network is that they are only possible because the Internet can serve as an alternative delivery mechanism. Because of this, it is no surprise that Comcast is in the business of providing Internet connectivity as they can raise broadband rates (or institute throttling) to make up for any lost television revenue caused by cord cutters. For this reason, I would like to see more competition among broadband-providers and hope some of the newer ISP entrants like Clearwire, Lightsquared, or even Google are able to survive and provide an alternative to Comcast.

Originally published at www.ryanmetzger.org on July 9, 2012.