Cable TV, Internet Access and… Monopoly?

How many of you out there remember when cable TV first became an alternative to the big four networks (ABC, NBC, CBS, and FOX)?  For those of you who have never not had cable, here’s a little history to bring you up to speed.

Prior to the mid-80’s TV was free!  Yes, you are reading that correctly, TV was free.  Anyone could buy a TV set and pick up a handful of channels that provided news, movies and original programming at no charge.  This was paid for by advertisers who bought time in 30-second blocks during the program’s time slot.  The more popular the show, the more expensive those seconds became.  No one really complained about content because this was just the way things were; you watched what was presented or you turned your TV off.

Somewhere in the late 70’s Sony released the first TV recording and playback device for home use.  It was called a Betamax and was heralded as the next big thing and it was for a very few very brief moments in time before its rival the VCR was introduced – at a cheaper price point no less.  The VCR became the ultimate accessory in home entertainment (I’m not going to debate the pros and cons of each system, that’s not the point of this essay).  Unfortunately for Sony, the VCR became the industry standard and the Betamax system died a slow death on dusty shelves in resale shops.

Soon small independent Video Rental Stores popped up in strip malls all across the United States where for a small fee you too could rent a blockbuster movie to watch in the comfort of your own home.  This was inexpensive, novel and became a standard Saturday night in for many families and couples.

Just as the novelty of watching movies at home started to lose its cache, a whole new way to watch TV was introduced to our mesmerized population.  Cable TV was advertised as the answer to those annoying commercial breaks in regular network programming.  For one low monthly fee, you could subscribe to a cable TV provider and watch commercial free programming whenever you wanted.  Cable initially offered a scant handful of additional channels outside of the big four and of course, it offered your premium movie channels, HBO, Showtime and I think Cinemax (this one may not be one of the first ones) as well.

One of the other big selling points of cable TV was that they would have 24-hour programming on most channels.  Network TV, at that time, generally signed off the airwaves at 2:00 am (Central) and insomniacs were left to watch random patterns on their TV sets or pick up a book.

MTV proved to be a runaway hit with young adults and teens.  The channel originally showed music videos 24/7 – I know there are many of you out there who have never known MTV to not be running marathons of their reality programming, but that has been a fairly recent change in their stragegy.  Interestingly enough, MTV (and other channels) also ran advertising which kind of defeated the purpose of paying one fee for commercial free TV…

This advertising was initially restricted to the beginning and end of the various programs so it was much less intrusive and I think there are quite a few people who may not have noticed its presence at all.  The standard network channels of course ran with their usual number of commercials per half hour.  The promised ‘commercial free’ programming was almost exclusively restricted to the premium movie channels.  This led many to scratch their chins wondering how exactly cable TV was providing something better than free TV was at that time, but the cost was low (I remember paying about $11.00/month for my first cable package) and you did get some additional programming so no one made too much of a fuss.

As time marched on, more cable networks popped up and were added to the various packages that the cable providers offered.  This did raise prices, but hey, more programming – even if said programming was in the form of reruns of popular big four network shows.  In the early 90’s you could find an episode of MASH playing at any time day or night!  These new networks were not commercial free at all and often ran the now familiar ‘infomercial’ as their overnight programming.  Many, many insomniacs (and people working late shifts) purchased a lot of Ginzu knives and Ron Popiel Pocket Fisherman devices.  It became clear that cable TV was not and was probably never planned to be, commercial free.

Despite the commercials running on almost all cable channels, the cost of the service began to creep up.  Some of this increase was driven by the licensing fees for the syndicated network shows as well as for the cost of original programming.  The rest of the increase was due to taxes levied by various cities and states and fees assessed by government agencies like the FCC.  Despite this, cable was still relatively inexpensive and viewed by consumers as providing good ‘bang for the buck’.

As the cable market exploded and the costs for programming increased, many smaller providers had to either drop out of the market or merge with other providers in order to continue to afford the cost of doing business.  This is after all the free market economic model that the US thrives on; increased demand for a product = increased cost of the commodity. As we bid good-bye to the 20th century, cable companies were winnowed down to one or two providers even in larger markets.

Satellite TV providers entered the marketplace and did provide a very small amount of competition to the entrenched cable companies, but were primarily used by people who lived in more rural areas where there was no cable available.  In cities of any size satellite was a hit or miss proposition since you had to have your dish set in an area with a clear view of the southern sky (this is still true) and in cities there are other buildings blocking the sky as well as restrictions against installing the dishes on apartments, condos, and townhouses.

The end result of this changing cast of cable providers ultimately led to the emergence of several ‘Mega’ cable companies (Cox Communications, Comcast and its progeny Xfinity, Time Warner, AT&T and others) which controlled the majority of cable outlets in the urban areas of the US, leaving the satellite providers to service the rural areas.  A natural consequence of limiting providers in any type of service is, of course, increasing prices.  In the early 00’s I saw my Comcast bill increase three times in the course of one year!

As an example, I am lucky to live in an area where we actually have two providers (this is not true everywhere) and when I moved into my townhouse in ’08, I switched providers to AT&T and at that time got a promotional rate with a bunch of incentives for switching from their competitor.  The service was good and I had no complaints.  The price inched up every year, but they were also adding content and the increases seemed to be justified – even if I wasn’t interested in the new content.  I understood that this was how this particular service was structured and at this time there was no one else to turn to unless I went back to Comcast which didn’t offer a discount that was worth the hassle of changing.

My cable service (and that of just about all of my friends and family) was bundled with internet service.  Initially, this was provided via a coaxial cable and as the 00’s became the 10’s it switched to wireless internet access.  The cost initially was nominal (particularly compared to the $80/month I was paying for cable TV) and I had become dependent on having internet access in my own home – spoiled?  Perhaps, but much of what I do demands internet access and I could certainly justify the additional $20/month to avoid having to go the library or to a Starbucks to get online (I could easily drink $20 worth of coffee working for a few hours at Starbucks!).

Once again, the lack of any real competition or regulation of the cable/internet provider service industry began to become a nuisance; I noticed that my AT&T bill was creeping up.  These increases were not accompanied by any commensurate increase in available programming and with a nominal increase in bandwidth in my internet service.  Of course, there were fees for licensing and for the creation of original programming which was provided by some channels that would add to the bottom line of some of the networks but the increases seemed to outpace these developments.

By 2012, home internet speeds had become super-fast and streaming of internet content was easy and reliable.  Add in the advent of the Roku box (and other streaming devices) along with Netflix, Amazon, and Hulu which provided access to a virtual Pandora’s box of content and you could essentially have your cake and eat it too.  By ‘cutting the cable’ and relying on a Roku box and the outlets listed above you would be able to stream whatever you wanted to watch, whenever you wanted to watch it.  Including the newest shows offered by the original networks – even if you had to watch those shows a day later.  It was perfect!

Even with the cost of subscriptions to the three streaming services you would able to save about $80/month (depending on your package) in cable fees, taxes and regulatory fees.  I was a very happy camper and quickly became accustomed to this new media set up.  In fact, I advised several close friends and family members to adopt the same setup and ‘show the cable companies we don’t need their programming’!

Turns out though the robber baron cable/internet providers are getting the last laugh (at least for now).  Customers got notice last week that AT&T would no longer be providing unlimited data streaming for people who purchase only internet access from them and they are not alone in this radical new pricing scheme; the other cable providers are introducing similar plans.  Starting May 23, if you want unlimited internet access you will be assessed an additional $30/month (plus taxes and fees which aren’t outlined in the letter or on their website).  If you would rather keep your current pricing plan (for example $45/month which includes any taxes and fees) they will assign an amount of data that will be included in that cost and charge for anything over that amount in 50 Gig increments at $10 per.  As of this date, their website doesn’t provide any data usage stats thereby making it impossible to figure out how much data you use.

Internet access has become almost essential to everyone.  In many cases, it is used to access school content beginning in elementary school and continuing on through college and university classes.  With the recession economy, we’ve struggled with since 2008, many people have had to rely on the internet to file for their unemployment insurance benefits as well as to apply for a new job.  I don’t think it’s possible any longer to job search without an internet connection and an email address.  Even when you land a job, it is very likely that your job will require internet access as more and more companies are trying to reduce back office expenses by reducing their real estate footprint. The bottom line here is that the internet has become just about as essential as electricity, water, and natural gas to maintaining a household.

With that thought in mind, let’s go back to the mid-20th century.  Everyone had a landline telephone, it was deemed to be an essential part of home ownership and societal outreach.  At that time, there was one – yes, one – provider of telephone service.  That company is not so fondly called Ma Bell.  Sure each state labeled their service as “Illinois Bell, Michigan Bell, etc.” but at the top was Ma Bell and she set telephone prices according to her own needs.  In the 1970’s congress and the FCC took a look into Ma Bell’s books and found some irregularities in her pricing structure with recent increases and one and all cried ‘Monopoly!’ (you wondered when that was going to come up – right?).  Ma’s family was broken up into regional companies and the FCC as well as other government agencies placed watchdogs at the gates to prevent further ‘irregularities’.

Throughout the 20th century telephone service went from a luxury to which only a few had access to something that was necessary and deemed a utility.  It was classified as something that would compromise the quality of life for many if it remained unaffordable to everyone. So, our government stepped in to make sure that the one company capable of providing access wasn’t taking advantage of its monopoly on the service.

Is it time for the government to take a look at cable/internet providers and have their forensic accountants go through their books looking for ‘irregularities’ in pricing?  Should something as integral to our daily lives as internet access has become continue to thrive in a non-competitive, monopolistic environment?  I urge all of you reading to give this some thought and imagine what your life would be like without easy internet access.  If you find, as I obviously do, that this is something that needs to be at the very least examined closely by an outside team of auditors, go ahead and let your legislators know of your concerns.

I welcome comments both pro and con, so feel free to let me know what you think in the comments section and have a great weekend.

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