The Biden administration wants to ban quit fees for cable customers
The Biden administration wants to ban quit fees for cable customers
This week, the Federal Communications Commission proposed a rule to ban so-called “early termination” fees by cable and satellite companies. You know, when you sign up for a TV package and get locked in for months or years?
Charging customers to quit early has been a key part of the cable TV business model and the bane of cord cutters. The Joe Biden administration calls the move part of its effort to get rid of “junk fees” for consumers. And it could hit a cable TV industry that’s already faltering.
For consumers stuck in a cable contract, finally getting to cancel whenever they want would be a big deal, said Ross Benes, a senior analyst at Insider Intelligence.
“But it comes about 15 years too late,” he said.
Traditional paid TV — that includes cable and satellite services — has been losing subscribers every year for more than a decade as consumers switch to streaming.
“You’ve gone from, you know, used to be like 70-plus percent of households would pay for a TV package, and now it’s about half,” Benes said.
The reason some stick with traditional cable is usually live events — especially sports, said Jamie Lumley, an analyst with Third Bridge.
“One of the big complaints when consumers think about the current streaming landscape is that they really have to get a lot of different services,” he said. “There might be one game on Apple TV, another which is on their linear channel.”
But with a cable bundle, Lumley said, you can get it all in one place.
That all-inclusive model might not be sustainable in a world where consumers can treat paid TV like they treat streaming platforms, said Jennifer Kent, vice president of research at Parks Associates.
“You can sign up for a service and cancel at your leisure, which means that there are very high churn rates,” she said.
“High” as in 50% canceling those subscriptions over a year.
“And so you can imagine the business challenge where half of your subscribers leave,” Kent said.
That could lead services to prioritize channels with trendy shows that draw subscribers, said Michael Pachter, managing director at Wedbush Securities. In a cable bundle, they help subsidize the less sexy, more niche channels.
“What sane human would subscribe directly to the Weather Channel, right? You won’t,” Pachter said.
And without customers being locked into paying for it all the time, he said, the Weather Channel might not be there when they look for it on the next rainy day.
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