The FCC Prohibits Hidden Cable TV Fees

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Back in March, a set of proposed rules were approved by the Federal Communication Commission, which will mandate that satellite and cable TV providers prominently display all prices, inclusive of fees, associated with their TV service in their advertisements. This implies that cable TV companies will no longer be able to hide the cost of their services by charging for things such as broadcast TV and HD technology fees.

In a 3-2 decision, the commission cracked down on hidden “junk” fees, ensuring that customers who compare pay-TV plans know what they will spend.

The restrictions seek to end what the FCC calls the "misleading practice" of classifying additional expenditures as taxes, fees, or surcharges. In order for consumers to make a well-informed choice whether picking a plan or subscribing to a special offer, the new pricing structure will require that all costs and taxes be clearly disclosed. The guidelines aim to decrease client misunderstanding while enhancing competition among suppliers.

In March, Federal Communications Commission Chairwoman Jessica Rosenworcel initially proposed the regulations, stating “This will assist consumers in the process of comparing plans offered by competitors, including streaming services. Working families deserve and expect transparency, but cable or satellite TV providers too often hide the real price of their service behind deceptive junk fees,” said Rosenworcel. “We’re putting an end to this form of price masking.”

A timeframe of when the regulations go into effect has not been announced but is anticipated to go into effect later this year. Several cable TV providers have already deemed this new regulation to be misguided.

Why does this matter?

Traditional cable television has been declining since 2013, when more than 100 million homes subscribed to cable. According to Parks Associates ates research, the cable business had its greatest income in 2015, totaling $105 billion. Consumers prefer streaming due to the ease with which services may be tried out, subscribed to, and cancelled. Pay-TV subscriptions and revenues are steadily declining as customers increasingly prefer over-the-top (OTT) alternatives. Streaming is the leading choice for video entertainment today; 88% of households subscribe to at least one OTT service while just 43% still subscribe to a traditional pay-TV service, a 25% decline from 2017, six years ago.

Consumers prefer having options, and they like not being bound by any sort of contract. Traditional cable companies' contractual requirements do help to reduce churn for pay-TV services. The disadvantage of the customer choice/no contract paradigm in streaming is the extraordinarily high churn rate. The average annualized industry churn is 50%, in direct-to-consumer streaming services, which means that over the course of a year, 50% of the typical streaming service's client base would abandon the service.

Today, the average household spends about $69 per month on streaming services, now about $12 dollars less then the average cable service subscriber pays. The rising cost to stream video may be necessary to reach a sustainable level of profitability, but consumers must see the value for this spend to continue, particularly as more and more household budgets continue to be restrained by inflationary pressures. Once consumers can recognize everything they are paying for in their cable bill, this may accelerate the adoption of streaming even further.

For certain pay-TV providers, the FCC plan will raise cable churn and accelerate the declining cable business and not actually increase competition as it intends to do. Smaller providers in rural areas where consumers are more likely to rely on traditional pay-TV and do not have reliable broadband internet may have little to no impact.

This is an excerpt from Parks Associates research. For more information, visit www.parksassociates.com