Cable companies make money through advertisements, content ownership, and charging cable package subscription fees by the cable provider. Their earnings in the early days were very simple and uncomplicated. Back in the early days, broadcast networks sent their signal to any population who were willing to watch their shows and ultimately advertisements, which helped them running the companies. If the signal can’t reach your residents, you could get it from a cable company for a monthly subscription. Then HBO and ShowTime came into play that let users watch TV without ads. They were originally were premium channels and soon they started offering their channel on cable against a nominal monthly fee. As a result, they generated two major sources of income, one was through ads and the other one was subscription fees – which was collected from cable operators.

Cable companies are known for offering expensive services these days when compared with the latest trending alternative services in the market which include Netflix, Hulu, YouTube, Roku, and such. We are assuming this is the reason it is now deemed that cable companies pay-TV networks for their content. But we have yet to figure this out. In this article, we will shed some light on how cable companies generate their revenue. We shall also learn how the leading cable companies such as Xfinity, Cox, Mediacom, or Spectrum cable TV formulate their business model whether they charge TV networks for displaying their curated content on their channels besides charging their clientele a subscription fee. So, without further delaying, let’s get to the discussion on how cable companies make revenue:

1. The license fee increases ad revenue

This is something we are already familiar with, it is said in the advertising industry that “paid advertising is worth more than free advertising.” Consumers tend to spend more time on publication whether it’s print or video when they spend money on it as compared to a non-paying consumer. Moreover, the prices constantly increase gradually and some portion of the content is premium which is offered at an additional cost. Plus, there are some other premium services as well that include on-demand besides add-ons to get extra features. All these services and features help cable companies make extra streamline of earning. 

2. Advertising revenue increased license fee revenue

As mentioned everywhere already that advertisements have always been the conventional medium for earning when it comes to sources of income. Through advertising revenue, the producers make high-quality content for the users that grab their attention and they start spending more time consuming the content and buying more advertised products. So, again, revenue generated through advertisement fundamentally enable the cable companies to produce more content and elevate their game overall. 

3. Premium Channels

These channels include programming that is offered at retail cost exclusively from channels like HBO, Starz, Cinemax, Encore, The Movie Channel, Showtime, and this programming is offered on a pay-per-view basis. These channels do not accept ads and essentially make money through the license fee. Premium channels were initially offered to monthly subscribers only who could view the exclusive ad-free content after paying them. Eventually, these premium channels started offering their content to cable networks as well for which cable TV pays these TV networks and it charges its customers too for offering them the premium channels. 

Conclusive Notes

We have tried to jot down a few methods and business models about how cable TV companies generate revenue. Their primary sources of income are quite evident which are fundamentally through advertisements and subscription charges. However, when it comes to paying TV networks, it is principally the cable TV companies that pay premium charges for the exclusive content they get from these TV networks. In return, they charge their customers for availing these premium services and that eventually becomes one of their primary sources of income too. Though, it may not be considered as the primary source of generating revenue for cable companies because premium services are optional and most of the users do not get services for which they have to pay additional charges. Therefore, the notion that TV networks pay cable companies is not right it is the cable companies that pay for the content they get from the TV networks that produce premium content services. 

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].