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Pay TV costing a pretty penny, and rising

Rising licensing fees are driving the cost for basic and premium of pay TV higher by 6 percent a year, a new study shows.
Rising licensing fees are driving the cost for basic and premium of pay TV higher by 6 percent a year, a new study shows.Matt Rourke / AP

If you're one of those people who complain that there’s nothing to watch on TV today even though you have a gazillion channels, you’re not going to be happy with this news – turns out, you’re paying more for cable.

The monthly rate for pay TV has been rising at an average of 6 percent annually and hit $86 a month last year for basic pay and premium-channel TV, according to a reported released Tuesday by market research firm The NPD Group. The uptick in licensing fees - which are the fees cable and satellite providers pay for programs - is driving much of the increase, at a time when consumer household income has hardly budged.

At this rate, NDP estimates consumers will be paying an average of $123 a month in 2015 and $200 a month by 2020.

The study was based on a quarterly electronic survey of 1,000 U.S. households.

Not surprisingly, the rising costs are making many consumers pull the plug on premium television. Today, there are five million fewer U.S. households viewing pay-TV services due to the mortgage crisis, the NDP research found, adding that those who did cancel service were prompted to do so because of economic reasons. But overall, the number of pay-TV subscribers has not declined substantially because of “bulk-service pay-TV contracts with apartment complexes and homeowners’ associations that have allowed pay-TV operators to retain subscriptions in vacant homes,” the study said.

Among the pay-TV cord cutters, most are still viewing their favorite shows via free Internet TV, traditional free broadcasting, and video-on-demand services such as Netflix, NDP reported.

The growth of lower-cost options, as well as cash-strapped consumers, is the reason the total number of subscribers of paid TV dropped to 100.9 million in the second quarter of last year, compared to 101.4 million in the first quarter, according to a IHS Screen Digest report released in September.

“As pay-TV costs rise and consumers’ spending power stays flat, the traditional affiliate-fee business model for pay-TV companies appears to be unsustainable in the long term,” said Keith Nissen, research director for NDP. “Much needed structural changes to the pay-TV industry will not happen quickly or easily; however, the emerging competition between S-VOD (subscription video-on-demand) and premium-TV suppliers might be the spark that ignites the necessary business-model transformation of the pay-TV industry.”

Indeed, something’s got to give: $200 a month for cable may end up getting some consumers pulling out their dusty old rabbit ears; that is, if they still work with digital TV.  

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