What should a company do when consumers reject its business model as outdated and expensive? Why, hike prices, of course.
This is the thinking of the beleaguered pay-TV industry, which has decided to wish its customers a happy new year with higher bills. Comcast (CMCSA), for instance, will raise its “broadcast fee” from $1.75 to $5 and its sports programming bill from $2 to $3. Time Warner Cable (TWC) has the same idea: Broadcast fees will go from $1 to $3.75 and sports ones will go from $2.25 to $5.
The rest of the pay-TV gang, including DirecTV (DTV) and Dish (DISH), are taking similar steps. The details vary, but the bottom line is the same: The cost of your TV package will go up, just as it did last year and the year before that.
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But the difference this time around is that consumers are hitting their breaking point. More and more of them are “cutting the cord” rather than swallow another rate increase. Recent studies back this up, including one from eMarketer suggesting that 25% of U.S. households will soon lack a traditional pay-TV subscription.
The turning point is not just ever-higher prices, which have pushed many consumers’ monthly bills north of $100 a month. It’s also the plethora of new Internet-based entertainment options such as Netflix (NFLX), Hulu, and Amazon Prime Video (AMZN). Pairing such services with free over-the-air TV channels (and spiffy new antennas) is proving to be a fine alternative to cable for many, and at a fraction of the cost.
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The traditional TV industry is starting to wake up to what’s going on and offer over-the-top options like a stand-alone HBO service. But it is also resorting to gimmicks such as speeding up dialogue in reruns of Seinfeld and Friends in order to pack more commercials into a 30-minutes show, and forcing consumers to pay hundreds of dollars to rent set-top boxes.
Such tactics make the core cable experience even worse than before — yet the industry seems to think another round of rate increases will fly all the same. The industry, of course, is under pressure from higher programming costs and must recoup them somehow. But now the situation appears to have reached an existential end point (as reflected by this summer’s share price beatdown) and one that will only get worse as the likes of Snapchat move in on their core business.
Stay tuned, as they used to say. It will be curious to see how many consumers make cutting the cord one of their 2016 resolutions.