Cable TV can't survive by jacking up prices forever

Cable TV is bleeding. People have been predicting the death of cable for years — The Week looked at four reasons the Time Warners and Comcasts of the world were headed toward extinction in 2010 — but the steady rise in cord-cutting keeps giving cable critics continuing cause to cheer.

Last quarter, according to media analyst Craig Moffett at MoffettNathanson, cable companies lost 687,000 customers. Time Warner lost about half of those cable-cutters (304,000 to be exact). The cable companies' big losses dragged down the whole pay-TV industry, more than canceling out gains in satellite TV and telephone-based video-streaming subscriptions (think AT&T U-verse).

All told, pay-TV companies lost 113,000 in the quarter. It wasn't the year's first net loss. "The pay-TV industry has reported its worst 12-month stretch ever," Moffett writes.

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There are mitigating factors, sort of. TWC's big exodus came in the same period it was in a bruising grudge match with CBS over how much Time Warner has to pay CBS to rebroadcast the network. Also, the customer losses "could have been worse," says Peter Kafka at All Things D. Moffett notes that thanks to a stalled housing recovery, there were 366,000 fewer new housing units in the quarter than a year earlier.

That suggests, says Kafka, that "since pay-TV growth is usually tied to housing growth, you would would think that would mean pay-TV declines would be worse last quarter than they were a year ago. But they're not."

On top of that, pay-TV providers actually saw a 5.1 percent increase in revenue in the third quarter, thanks to "unending price increases," says Kafka. "If they can keep pulling that trick off, they're in fine shape."

But of course, they can't. In fact, "the fact that pay-TV revenue is still rising smartly is part of the problem," say Moffett and his partner, Michael Nathanson. "We have always argued that cord-cutting is an economic phenomenon, not a technological one," so people are fleeing to the internet for their video content because cable is just getting too expensive. "Rapidly rising prices are squeezing lower-income consumers out of the ecosystem."

The cable companies can't continue like this, says Mark Sullivan at TechHive. It's not all their fault: "One of the biggest reasons for the subscriber losses is quickly-rising licensing prices being asked by TV network and Hollywood content creator/owners," estimated at "a brutal 8-10 percent per year." Still, as video content becomes less profitable, the cable companies are making up for the shrinking margins by raising internet rates, too. This could easily become a vicious cycle of price hikes and fleeing customers, Sullivan says.

Quartz's Richie King put together this chart that, among other things, contrasts the downward trajectory of cable with the sharp upswing at Netflix:

(Source: Quartz)

It could continue to be a steady bleed for cable providers, or they could start hemorrhaging customers even more quickly. But if their only tool is raising prices, eventually even stalwart cable junkies will start considering a cord-free life. Twenty years ago, who would've predicted the demise of video-store giant Blockbuster?