A Potential STB-Sized Hole in Pay TV Revenue

set-top boxAs noted in one of my previous posts, at least some pay TV companies are finally pushing forward to eliminate set-top boxes (STBs) in favor of apps loaded to smart TVs. In that post, I alluded to the question of forgone revenue. A recent article in the L.A. Times put an estimate to that question.

The author of the article did some digging into costs and revenues. By his estimates, STBs cost between $150 and $250 as delivered to pay TV providers. But by average revenue from leases of those boxes, pay TV companies receive around $230 a year. This means it only takes about one year for companies to recover their expense for the box. Every month’s revenue after that is pure profit.

In terms of gross revenue, the author estimated Comcast’s Xfinity brings in $2.6 billion a year from STBs; and Charter brings in $1.4 billion. So while a billion may not buy what it used to, it’s still a large number to cut out of pay TV revenues. This is especially true with cord-cutters and skinny bundles also making a slow but sure impact.

Filling the Gap

There is surely money that can be saved from the overhead required to maintain a large stock of STBs – both administrative and in-field – but that is unlikely to fill the revenue gap. As I note in my previous post, to what new and inventive charges will subscribers be subjected in order to maintain overall revenues? And will that drive away even more consumers fed up with bring nickled-and-dimed to death by the legacy pay TV providers?

David Tice is the principal of TiceVision LLC, a media research consultancy.
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