Satellite radio. Cell phone. High-speed Internet service. Matt Botwin, a Washington consultant, has it all -- and the bills that go with his growing bundle of technology.
With each new service, more of Botwin's monthly income is spoken for. A generation ago, mortgages, utilities and newspaper subscriptions made up a short list of payments due each month. Now Americans pay an average of 12 bills a month, including fees for a broad range of services such as television programming, home security-system monitoring and online gaming Web sites. And each individual bill may increase as consumers add incremental improvements such as Internet access to their cell phones and premium channels to their satellite radio service.
Botwin figures that he spends at least $250 a month on his subscription services. "I'm not happy about it. It's a lot," Botwin said. But he also feels that his digital devices and services are necessities. The Sirius satellite radio is indispensable for his frequent drives to New York and Philadelphia. "It's like any luxury. I didn't think I needed a microwave [oven], but I'm sure glad I have it now."
Economists and academics are beginning to grow concerned about Americans' willingness to cede a regular chunk of their monthly paychecks to new conveniences and services, saying it is taking a serious bite out of discretionary spending, a key driver of the nation's economy. They also worry that new services are contributing to a growing divide between consumers who have the means to secure special treatment, such as access to free-rolling highway lanes, while others are stuck in bumper-to-bumper standstills.
This lock-'em-in-and-keep-'em-loyal routine has roots going back 100 years, with King Camp Gillette, who at one point gave away his innovative safety razor, then made his fortune selling the disposable blades. High-tech companies have found a way to raise the stakes. The foundation of their new business model may have been pioneered by the cable industry in the early 1940s when it began offering consumers, for a small monthly fee, access to a better television picture. In its early stages, cable charged less than $5 a month for a service that was nothing more than retransmission of local TV stations. Now the industry has become a telecommunications and entertainment behemoth that offers hundreds of channels, high-speed Internet access and telephone service, among other things. The monthly cable bill for millions of subscribers now totals well over $100.
Michael Mazis, chairman of the Department of Marketing at the Kogod School of Business at American University, said the cable industry followed a classic marketing pattern of getting a foot in the door with a basic service and then methodically increasing the consumer's dependence on the product.
A Cox cable customer who subscribes to the so-called "triple play" -- television, telephone and Internet -- will have a monthly bill of about $140, according to company officials. If a customer subscribes to a full tier of products, including digital cable channels and high-definition television service, then adds a digital recording device, the monthly bill could approach $200.
David Pugliese, vice president of marketing for Cox Communications Inc., said the larger cable bill does represent savings for customers, who would pay more for the various services if purchased separately. He also argues that the popularity of the product proves that consumers are willing to pay significant fees for entertainment and convenience. "We've always been concerned about whether sticker shock is a concern for consumers," Pugliese said. Cox offers consumers the option of receiving a separate bill for each service.
Mazis contends that all the earmarked spending on new conveniences raises concerns for other products competing in the marketplace. "It reduces the amount of disposable income," Mazis said. Ultimately, shopping malls, restaurants, even catalogue merchandisers may find that they are taking a back seat to services that are billed to consumers on a regular basis. "I think it is really affecting the purchase of clothing, for example," Mazis said.
But larger market and competitive forces make it unlikely that the trend will reverse anytime soon.