Back at year end I came across a research report noting that Dish Network and Comcast were both raising pricies across their entire spectrum of video offerings with the largest percentage increases occurring on introductory level packages. This struck me as out of sync with the very bearish sentiment on the Street concerning the competitive environment in multichannel TV. I recognize that the bigger concern surrounds the entry of the RBOCs into the TV business, but nevertheless, it does seem that if satellite and cable management’s were deeply concerned they wouldn’t be raising the price umbrella further just ahead of a significant new entrant. I suppose you could read it as “let’s milk our customers as much as we can before it’s too late” but I am not that cynical. Maybe I should be?

I bring this up because DirecTV announced its own price increases last Friday and they were similar to the plans put out by DISH and CMCSA in that prices increase the most for low priced packages. One twist though is that DirecTV is raising prices less for existing customers than on the packages for new customers. This implies customer retention is part of their strategy and that is something the company has talked about since being taken over by News Corporation.
I guess something else to consider is that there aren’t many truly new subscribers with multichannel subscribers representing around 90% of total TV households. In that case, since everyone raises prices the competitive dynamic among current entrants is not altered all that much. Satellite uses lower pricing and aggressive equipment subsidies and cable uses the bundle of video, data, and telephony.
It still seems like the incumbents are just raising the pricing umbrella under which the RBOCs can slide; something they wouldn’t be doing if they feared the RBOC entry. I guess since RBOC entry will be gradual by community, the incumbents feel they can respond to those threats in just those markets while milking the customers in non-RBOC markets as long as possible.
Even after writing all that, I can’t get over the fact that ARPU trends in TV and data have been remarkably stable, in fact rising, over the past year. This clearly suggests that at least for now the greatly feared competitive environment is not as bad as the Street thinks. This should provide comfort to cable and satellite longs because it supports another year of double digit cash flow growth while the stocks sit at all-time low valuations, fully 40% below levels of a couple of years ago. In the meantime, balance sheets are strong and free cash flow is enormous. Still seems like a disconnect to me and Comcast is the best way to play it.