Bernstein Research says the cable and satellite industries
face a "new normal" of years, perhaps decades, of reduced
discretionary consumer spending--at least compared to the boom times that
preceded the economic meltdown. That could make price increases for cable and
satellite service problematic.
In a weekend report from senior analyst Craig Moffett, he
pointed to the recent finding that pay subs had declined for the first time in
recorded history and said that it was likely more than just the downturn in new
"Perhaps the most consistent theme in our research over the
past two years has been the widening disconnect between flat-to-declining
consumer disposable income, particularly in the bottom two quintiles of
household income, and the rising price of media and telecommunications
Moffett says the price of programming and retrans have helped
boost the cost of expanded basic to $60 "at a time when the average family
in the bottom quintile spends just $50 per month on all media."
Spending on traditional cable and satellite service (not including
Internet access and phone) has grown from 0.5% of all discretionary income 25
years ago to 1.4% today. But with incomes falling, savings rates rising and
necessities "crowding out" discretionary items, "where exactly
will the money come from?" he asks, but does not answer.
"The media industry is "intractably addicted to price
increases," he argues. He says efforts, like Time Warner Cable's, to
create smaller, less expensive, packages makes sense, but that economic models
are based on ubiquity of channels.
"Does anyone doubt that investors would react negatively if
it were perceived that Cable and Satellite's ability to push through price
increases were called into question?" he asks.
But isn't that just the question Moffett's memo is raising?
"More or less, yes," he says.
"But it is not a stock call that says go out and sell your
cable stocks tomorrow or buy or sell media stocks or anything like that.
It is saying this is probably something you should be thinking about. If you
are a serious student of history, you ought to be thinking pretty hard about
the fact that, for the first time in 25 years incomes are stagnant and savings
rates are rising and the available pool of funds is shrinking materially,"
he told B&C.