Paying for a TV service you didn't choose

For homeowners who don't want paid TV programming or would rather choose another provider, locked-in television fees amount to a tax.

April 7, 2005 9:01 a.m. PT

5 min read

Bob Teitelbaum is a sports fanatic who gets his daily fix of football, baseball and basketball games from DirecTV, the satellite television provider. In all, he spends about $150 a month for his premium programming package.

But his household, like every other in his West Palm Beach, Fla., golf community, is also required to pay about $31 a month for cable TV from Adelphia Communications.



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The real estate development company that runs Teitelbaum's community has a deal with Adelphia that obligates every homeowner to subscribe to a standard cable package whether they use it or not.

"That's the rule, so that's what I pay," Teitelbaum said of the mandatory fee that is included on his quarterly maintenance bill from the property owner's association. "But I hardly watch it. I would pull it if I could."

With new subscribers harder for companies to find, more consumers like Teitelbaum are being locked into compulsory plans. Among the hottest battlegrounds now for customers in the pay television market are planned communities sprouting up across the Sun Belt and apartments and other multiunit housing blocks in big cities--basically any development where a homeowners' association or management company charges residents for property upkeep, security and the like.

Cable and satellite providers, of course, love striking these bulk subscriber deals because with one contract they can capture hundreds and sometimes thousands of customers who generate a steady stream of fees for years.

Developers, condo boards and property associations like the deals, too, because they need to work with only one television provider and because the deals can offer homeowners significant discounts for their cable service.

But for homeowners who do not want paid television programming or would rather spend the money on programming available from another provider, the lock-ins amount to a tax.

Cable companies have been making these compulsory deals for years. But in a field they once dominated, they now have to fight with satellite providers, resellers and even the Bell companies, which are fast moving into the video market.

"Like everyone else, we want to be the provider of choice," said Chris Scurto, the vice president in charge of bulk contracts at Charter Communications, the country's fourth-largest cable company. "This is becoming a complex-by-complex battle, a development-by-development battle."

What makes this fight so fierce is the dearth of new subscribers. With approximately 85 percent of American households already paying for some sort of television and the remaining 15 percent unlikely to sign up for any service, cable and satellite providers are increasingly chasing each other's customers.

"Everyone who is going to pay for TV already pays for it," said Todd Mitchell, an industry analyst at Kaufman Brothers Equity Research. "The only people without it are Luddites and people too old to appreciate it."

While industrywide data on exclusive contracts is unavailable, many pay television providers say the number of new customers acquired through bulk deals is growing faster than the number of new customers over all. Of the roughly 20 million housing units in apartment blocks or communities governed by an association, industry analysts and company executives say, from 2 million to 3 million are locked into a bulk deal. Cable companies typically try to reach agreements with

developers before they start construction so they can lay fiber-optic cable in the ground before all the roads are paved. That also allows them to share the cost of laying the cable with the phone company, electric utility and others who are also installing equipment.

Comcast, the country's largest cable provider, said it spent $133 million in 2004 to reach new agreements with landlords of apartment complexes and other multidwelling units. Comcast, like other companies, does not release information on how many of its subscribers are included in these compulsory contracts.

While cable companies have most of these contracts, satellite providers have made gains in this market. Robert Grosz, the director of commercial sales for EchoStar, which runs the Dish Network, said his company's bulk subscriber sales had enjoyed "strong double-digit growth" for the last five years.

Satellite companies have also been pitching their services in apartment buildings, once cable's stronghold.

For years, satellite providers found it hard to sell in apartment towers because landlords were reluctant to have satellite dishes mounted outside every unit. Nowadays, satellite companies install a dish on the roof and use existing coaxial lines installed by a cable company to get television signals inside the building.

Bulk deals with apartment buildings are particularly attractive because such deals do not need a franchise or right-of-way agreement with the local municipality.

To win a contract, cable and satellite providers offer discounts of 30 percent or more, according to many companies. Often, landlords sign deals that obligate residents to buy a standard package of about 75 channels. Teitelbaum and his neighbors, for instance, pay 36 percent below the retail rate for his standard cable plan. Residents who want, say, digital channels, a digital video recorder or a high-speed Internet line pay extra for those features.

People like Teitelbaum who want programming offered by a rival company, however, must pay redundant fees.

Two years ago, Steve Santos, who lives in Teitelbaum's development and pays for Adelphia cable service, ordered satellite television from EchoStar. Santos, who spends about $70 a month for the extra television service, signed up with Dish Network because it offered a digital video recorder that Adelphia did not offer at the time.

Adelphia now offers its own digital video recorder, but Santos has not pulled the plug on Dish, because he is reluctant to change what is not broken.

"I could get a premium television plan from Adelphia, but it's easier and it's here," he said, referring to his satellite service.

Santos uses the basic cable service for the televisions in his spare rooms. Still, with two television services, Santos says, "I can never find anything to watch."