Why TV content costs are rising

All over the world, prices that consumers pay monthly for subscription television or video services continue to rise –to their understandable chagrin. This rise is driven largely by the costs that distributors (pay-TV companies) must pay to the companies that create or package the programming or content: the networks. Subscription TV companies, as a rule, pay a fee for every household that receives that package, whether or not anyone in that household watches the network.

The networks also set certain rules for how their content can be sold to end consumers, including which packages can contain their channels. This leaves little wriggle room for pay-TV providers. Fees paid by pay-TV companies to distribute content from networks like Discovery, Viacom, MGM and Disney are set in private business negotiations. Subscribers rarely know those negotiations are taking place let alone their outcomes.

However, fees have risen higher and higher recently, leaving distributors with no option than to pass the cost to subscribers. In February, for example, broadcasting rights to the Barclays Premier League for three seasons (2016-2019) were sold to two major British broadcasters for a hefty sum of £5.41billion, a 71% increase on what was paid for the rights between 2013 and 2015.Sky, which paid £4.2billion of the sum, announced five weeks after payment that it was increasing monthly subscription to its sports bundle by £1 to £47 and its Family bundle by £3 to £36. Sports is the most expensive programming because it draws large audiences to live events. For instance, American broadcasters will pay $24billion over nine years to carry NBA games, a cost that gets passed along to distributors, such as pay-TV companies, and then subscribers.

Locally produced content is similarly affected. Nigerian content producers, like everyone else, are victims of the country's high-cost economy, one characterised by acute lack of infrastructure and the weakness of the country's currency. Thus, every step of the way, the local content producer, confronts increasing overheads and is required to sell to distributors at prices that enable it stay afloat as well as maintain quality. A Nigerian pay-TV company that has content production, in addition to aggregation, in its portfolio is then doubly yoked: increasing costs of international content as well the high cost of doing business locally. To remain a going business concern, it has to bill appropriately.

If a pay-TV provider fails to meet the demands of content owners, it risks the withholding of transmission consent or jeopardises its chances of having its contract renewed. Either way, it could lose content that is responsible for bringing subscribers to its platform and retaining them.

A renewal is the process that takes place when a network negotiates a new contract with a pay-TV provider. Contracts, by their nature, are not renewed on higher financial terms. Retransmission consent is the legal term for the process that occurs when a pay-TV provider negotiates with a content owner for permission before carrying its programming, usually in exchange for cash. Relationships between content owners and distributors, globally, are delicate. In many instances, disagreements develop over rising retransmission and programming fees.

Most times distributors are forced to pass the cost to the end consumer and deal with resultant subscriber anger. The other option is not to agree to pay what content owners demand and deal with the consequences of having their programming yanked off the pay-TV company's line-up.