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How Do Cable Companies Make Money?

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Sep 27, 2020

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Every one of us might have pondered at some point that how these cable companies can make money. In a time of changing TV viewing habits, more competition, and rapid technological changes, big names like Xfinity or Spectrum cable TV are always coming up with better plans and offers at pocket-friendly rates to fight the competition.

There has been a lot of evolution in the television entertainment industry. The premium channels like HBO or Showtime now provide TV entertainment without any ads but might come with an extra cost. Though streaming services seem to have created much hype among the users, cable TV still remains to have a sound place and has millions of subscribers across America. 

How Do Cable Companies Make Money?

The Beginning

In the beginning, the broadcast networks used to transmit entertainment content along with advertisements for those who wanted to watch them. Antennas were used in order to watch broadcast TV channels. However, those who lived in areas where the broadcast signals did not reach, could pay a monthly fee to a cable company in order to access those channels through the wire.

2 Options

With the advent of premium channels, the broadcasters ultimately agreed to send their shows over the cable. The channel owners had two options for generating good revenue-they could either rely on the ads or the subscription fees. These subscription fees are collected from the users by the cable operators who would provide access to the channels in the form of cable TV packages or bundle offers.

Cable operators

The cable operators on the other hand also have multiple options for getting paid. Users pay rent for the set-top boxes, the packages they buy, or the local ads that we see while watching the channels. The revenue generated breakdowns among the cable companies, program networks, and program producers.

Internet era

Things were running quite smoothly in the entertainment industry until the internet came into existence and took over the world by storm. New companies kept budding and with time, the online streaming trend gained impetus. Nowadays we see big names like Disney, HBO, and Apple being a part of the streaming war.

So cable TV has experienced a loss in terms of revenue and subscribers. But cable companies bounced back by rolling out bundle deal offers where you can bundle up cable TV, internet, and phone services at discounted rates. The bundle offers are more popular among subscribers since they are more pocket friendly and offer the convenience of managing everything under one bill.

In the beginning, the internet was not very popular in terms of video streaming. But recently there is much to watch and the improvements in internet speed have led to better TV watching prospects. Streaming shows online or downloading video content is a matter of seconds. Netflix, Hulu, Sling TV, Amazon Video, and others have accelerated the cord-cutting trend by promoting TV over the internet.

Thus the cable companies observed a serious setback in revenues, especially in the last decade.

Revenue decrease

Another factor involved that has resulted in a decrease in revenue generation for cable companies is that users want to avoid the channels they don’t watch. People realized the fact that they are often paying for TV channels they never watch. For instance, ESPN has a 3 percent cable audience on the whole but is paid around an 18% share of cable subscription fees. Fox on the other hand engages 13% cable TV audience but receives only a 3% share of cable TV subscription fees.

%

ESPN percentage of cable audience

%

ESPN subscription fees share

Stability

There is another side of the story. Cable companies have cracked the code of maintaining a stable position in the industry and compensating their dropping revenue. Most cord cutters that abandon the cable TV subscriptions do not quit the cable provider. The reason is that most cable companies offer cable internet services needed for accessing any online streaming service.

Thus cable companies are not left empty-handed as their subscribers are still paying for the subscribed cable internet services.

%

Fox percentage of cable audience

%

Fox subscription fees share

The bottom line

Cable companies make money mainly through advertisements and cable fee subscriptions. The new online streaming trend has affected their business but the cable companies still manage to compensate for the loss by generating revenue through cable internet services mandatory for internet-connected TV.

No doubt the TV watching trends are changing and in the near future, we might see a greater shift in TV watching habits with internet-connected TV being even more popular.

Frank Wright

Frank Wright

Content Strategist and Digital Analyst

Frank is a proficient writer with a strong grip on the concepts of marketing, technology, design, and lifestyle.
His articles have been featured on well-renowned properties. In his spare time, he likes to read about the latest trends pertaining to the digital industry. You can find him on LocalCableDeals.

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