Pay TV Will Have to Keep Paying

Pay TV wants to put its foot down on rising content costs. But it may find content providers are inured to its stomping.

A number of major pay-TV providers have publicly joined the chorus in recent weeks, protesting programming costs that are rising faster than the companies can raise their own prices. Time Warner Cable has threatened to drop smaller channels. Last month, Cablevision sued Viacom, alleging that its practice of bundling channels violated antitrust laws. Comcast, for its part, opted for an early buyout of NBCUniversal to hedge against escalating programming costs. The latter were about $32 per video subscriber in 2012, according to Janney Capital Markets. This year, the brokerage firm estimates, those costs will rise 12.6%, with the prices Comcast charges its video subscribers rising only 4.3%. In the latest protest, Verizon Communications is proposing that its FiOS TV division pay networks based on the number of people who watch their channels. Verizon's plan wouldn't necessarily lower bills for FiOS subscribers. But it might help to slow the sharp step-ups in programming costs. Of course, ESPN and other networks would likely insist on higher per-subscriber rates to ensure they cover their costs. But even if ESPN charged $10 a subscriber per month, Verizon would only pay $9.4 million in fees if, say, 20% of FiOS's 4.7 million subscribers watched ESPN that month. Right now, Verizon pays roughly $24 million a month no matter who watches.