Cable TV Cord Cutting Won’t Come Quickly, Could Be More Expensive Than Cable
We are obviously moving toward an era of streaming and other services that don't rely on Cable/Satellite providers, but it will still take some time to get there and for it to be cost effective.
Last, HBO announced that it would begin offering an online streaming service next year that would not require a consumer to have a cable or satellite dish subscription to use. The next day, CBS announced that it was beginning immediately a service that would stream all of its shows with the exception of NFL Football and, presumably other sporting events such as golf and NCAA Basketball. As I noted when I wrote about both decisions at the time, these were big steps forward down a road that, someday at least, would allow consumers to truly “cut the cord” and access programming without having a cable subscription. Beth Braverman at The Fiscal Times notes, however, that cord-cutting is definitely a long way off, and it may not be as much of a benefit as some people think.
Braverman breaks her argument down into four categories.
First of all, of course, is the rather obvious point that you’ll need additional devices to access content without a cable subscription. A computer or tablet would fit the bill of course, but there are other potential options such as Roku box or HDMI stick that fits into a plug on your television, a Chromecast stick, or even an HD Antenna that would allow you to access at least the broadcast television channels in your areas over the air for free. Additionally, most Blu-Ray players include Internet access that allows to access streaming services like Netflix, Amazon Prime, Hulu Plus, and YouTube as well as other services. Presumably these devices will also be able to access additional streaming services in the future. Each of these costs money that ought to be factored into any decision about whether or not cord-cutting would work for you. At least initially, of course, most people inclined to do this are going to have at least some of the technology needed to pull it off but many average television viewers won’t, and many of those people won’t necessarily be technologically sophisticated enough to figure out how to pull all this technology together. Because of that last factor, adoption of cord-cutting technology is likely to be slow outside of the millennial generation and others who are sophisticated technology consumers.
Second, of course, even if every cable network eventually moves to streaming content, you’ll need paid subscriptions to replace the content that you will no longer be able to access via cable but still want to see. So far, we don’t really know what the pricing models for these streaming services might be; HBO, for example, has yet to discuss what the pricing for a non-cable subscription to its streaming service might cost. However, even if you just have a few cable channels that you want to watch without having to pay for everything else, that means paying for a bunch of subscriptions that may, in the end, come to a total cost that isn’t all that different form what you’re paying for cable itself. Additionally, the rise of streaming services is likely to cause cable companies to offer discounts and bundles with more competitive pricing that could change the corded v. cordless calculus for many people.
Related to this point but not mentioned by Braverman is the fact that some niche networks may not survive in a pure streaming world, or one where streaming becomes enough of a business factor that cable networks become more parsimonious in home much they are willing to pay for content. It may be the case that well known networks like Discovery, Animal Planet, and HGTV, The Food Network, and other networks might not be able to survive in a market where streaming is the predominant source of content. Of course, some of these networks are owned by larger media companies — USA Network is owned by Comcast/NBC for example, and TNT, TBS, and CNN are all owned by Time Warner — so they may survive under that umbrella by being sold as part of a package of streaming services or via some other arrangements. The same could happen to the major cable news networks, although it’s worth noting that news has never been a money maker for any network and, if the broadcast networks someday no longer need to rely on over-the-air broadcasts then the “public service” need for news departments will largely disappear. In other words, at least initially, the streaming world may end up having less content available than what we have today.
Next, Braverman notes something that I’ve mentioned before:
You won’t find the current season of cable hits like “Mad Men” or “Sons of Anarchy” available anywhere besides your cable television package. That can mean a year of missing out on post-show discussions and trying to avoid spoilers.
For sports fans, the availability of programming is pretty scarce, especially if you want to watch a live game on your ginormous-screen TV. Many of the sports leagues will let you watch a streaming game online for a fee, but only if that show is not being broadcast nationally or locally. (ESPN does have an app for digital viewing, but you need a cable log in to access it.)
Of all the programming on cable and broadcast television, there’s nothing that is likely to cost more in a streaming world than sports. This would be especially true if you end up having to get separate subscriptions for each sport, but even if that’s not the case, there’s more to the sports television world than ESPN —- NBC Sports, Fox Sports, and the channels run by each of the leagues just to name three — and for someone who is a fan of more than one sport, individual subscriptions to all of that content is likely to add up quite quickly. More importantly, cord cutting right now would mean losing access to much of this content since there presently are few options for the sports fan who doesn’t have a cable or satellite television subscription.
The final note is the most obvious one. In order to access all of these content, you’re going to need an Internet connection and the majority of Americans presently get their Internet access from the same company they get their cable television, often as part of an overall package that often now also includes home telephone service of some kind. Even if you get rid of the television side of the subscription, you’ll still need to use the Internet side, and that subscription may end up being more than you’re paying today because it won’t be subsidized by your subscription to the television side of the equation.
None of this is to say that cord-cutting is a bad idea, or that we won’t one day see the day when most people are accessing their content over the Internet instead of via a wired service. Indeed, that day seems as though it will inevitably come. However, it’s not going to happen any time soon and it’s likely to bring with it its own costs and headaches that could be just as frustrating and expensive, at least initially, as dealing with the local cable monopoly. The one advantage that such a world may have, of course, is that a plethora of content providers will likely lead to much greater competition that should keep downward pressure on prices. And, of course, there is likely to be technology coming down the road that will make the whole process easier and cheaper than it is right now. For the moment, though, cord-cutting as a way of life is going to remain on the bleeding edge for awhile, and it’s not likely to be much cheaper than cable unless you just want to watch one or two “channels” all the time.
I’m not so sure about this. I think there is a strong correlation between age and “cord-cutting.” My personal experience is that even at 53 and working in the technology field my total entertainment cost is $39/mo for internet and the one time cost of $99 for an AppleTV (now running XBMC). But I don’t think I’m a representative sample of the point you are trying to make.
My adult kids (which are no more technically savvy than SnapChat on cell phones) have all cut the cord. On their own they have gone out and purchased OTA antennas and are satisfied with that combined with streaming other content.
They simply see no value in the content available on most cable channels, and with the exceptions of sports (which they get OTA) they see no value in real time access to serial shows.
My 29yo daughter is a documentary hound, and is probably the target customer for “Discovery, Animal Planet, and HGTV, The Food Network, etc.” Since getting an antenna she gets her educational appetite met by the local PBS station and the HD sub channel “PBS Create.” She now considers those other channels “crap” and sees no value in them whatsoever.
It’s not an economic issue as much as a shift in consumer behavior. Very similar to the issue with the auto industry. Younger people are increasingly urban and see no value or “status” in owning a car. They do not have the same interest that I had at that age that a car implied status or freedom. They see car ownership as a simple utilitarian burden that in many ways limits their freedom to move about or have disposable income.
Many of the points made in your article are reminiscent of the music (and now film) industry where there was a cultural shift that the distribution system for those products chose to ignore. And we know how that turned out.
You also might want to look into how the Cable companies are bleeding customers.
I haven’t had cable or satellite for a good ten years. Now I have Hulu and Netflix subscriptions totaling $16 a month and I get all the TV I need.
So obvious that I had to point it out in your previous posting on this subject?
The bottom line is that we’re moving to a model where the product is “internet services”, which will include all of the traditional ‘broadcast’ media (radio, TV, cable), telecom products (phone, fax, VPN) and “web stuff”. Some of those will be free (or, rather, no additional charge) to all subscribers. Some will require an additional monthly fee. Some will be pay-per-view, or some other metered pricing. And it will all shake out eventually, based on what people are willing to pay for and how they’re willing to pay for it.
We might even eventually get to where basic internet access is considered a public good, along the lines of basic broadcast TV/radio, that will be essentially free. That wouldn’t surprise me at all.
Cord cut two years ago after getting completely fed up with yet another round of Comcast price increases. I’ve saved around a thousand dollars, I’m never wanting for quality viewing content (including live streaming news channels), and almost never having to sit through commercials any more has reclaimed countless hours of my life. Best decision I’ve made in a very long time.
Over the last few years I have been amazed at the clarity of the stations that come in by antenna – free! Sometime I am going to switch to that. Not many stations, but free. This is a new opportunity for someone.
In a moment of weakness, I signed up for DirectTV just before football/basketball season. Football is easy to get OTA, but basketball is another story.
Fast forward to now. The introductory rate on my package expired and now it’s one of my largest expenses. It’s more than my water billl. It’s more than electricity and gas. I could call the company for some relief, but like cell companies before T Mobile’s new policies, they offer nothing but Faustian bargains. Get ripped off this way or get ripped off that way.
In that context, cord cutting shouldn’t be seen as a cost-cutting move so much as it is an effort to stop doing business with a company who will rip you off.
@James Pearce: There is talk of letting customers choose their own stations. If it was up to me I would just need probably no more than 15. But with four other people here I don’t think that my choices of wrestling, car racing, hockey, history, cartoons (Spongebob, Rocky & Bulwinkle, Tom & Jerry), and scary movies would get anywhere.
As more and more people cut the cord, there are fewer and fewer TV shows that are cultural milestones. I expect people will be streaming from one or two services, buying one or two shows as they air, and stealing what they can’t get otherwise.
Maybe going over to a friend’s house, if they are bad at theft. The number of people I know who watch Game of Thrones together at the house of a friend whose parents (on the other side of the country) have cable and an HBO subscription is very large.
Sucks to be a cable company, but there is a reason they are all hated — they’re terrible people who use their local monopolies to extract more wealth than they would otherwise get.
It’ll be interesting to see what happens if we reach the day when cable viewers stop subsidizing one another. A lot of the people look at the channels they don’t watch, and resent paying for them. But people who watch those channels end up supporting your preferred channels.
One way or another, the content-makers are going to have to make their money or stop making stuff. I’m not a big fan of the cable companies, but the astronomical rates they charge are due in large part to the fees they have to pay the content-makers, who pay a lot to make them (and fund projects that never make it to the air).
For people who enjoy a lot of content, it’s easy to see this as a negative development. Likewise, if you like stuff that’s offbeat or with limited mass-market appeal, a lot of stuff you like may stop getting made. This could be what kills the golden age of television. TV could become like movies, where the major studios seem to have lost interest in content without a built in audience (superhero movies being the biggest example).
On the other hand, more and more organizations are producing content (Amazon, Netflix, Yahoo) and a quick trip to Redbox shows lots and lots of movies being made that we rarely hear about. Maybe that’s a bubble, but maybe not.
When I was growing up, over 50 years ago, we were one of the first areas to have cable TV because although we were only 3 miles from downtown Portland we lived in a canyon and the signals never made it down there. At first it was just the local channels . The first I recall was a local channel from San Francisco. Our first cable box could handle less than 15 channels. It remained that way for several years until CNN and the Weather channel appeared. Then there was Showtime. Today I have access to nearly 200 channels at least 90% of which I never watch.
One of the reasons cable is so expensive is the cable providers have to pay most of the networks for the right to air there shows.
I had Netflix streaming for several years but dropped it when I signed up for Amazon Prime and saw how many free movies and TV shows they had.
@Jeremy R: I’ve saved around a thousand dollars, I’m never wanting for quality viewing content (including live streaming news channels), and almost never having to sit through commercials
You are missing the big picture.
Most cord-cutters are currently being subsidized by the still corded. Look at comic books and graphic novels. The vast majority of graphic novels are collections of monthly comic issues. It is the sales and ad revenue of the monthly comic that pays the upfront production costs. That allows the graphic novel to be sold at a much lower price than if it had to cover those expenses. That is why almost all original GNs provide much less content at a much higher price point.
If enough people cut the cord and make those old distribution channels non-viable, cord-cutters will have to…
A. Pay for the content they now get for free.
B. Sit through commercials.
C. Have less content available to them.
Mike
It’s funny to watch the grousing about cable. Government gave them the monopoly. But the market is coming to the rescue.
@Trumwill:
I think this threat is a bit overblown, for one, because if you “stop making stuff,” you won’t make any money.
The content-makers are, of course, into maximizing profits. If making two-camera sitcoms and freak-of-the-week hour-long dramas for syndication are what makes money, those are the shows they will make. When the networks who used to syndicate your shows (FX, AMC, etc) start making their own shows, you stop focusing on syndication and shift towards shows that are more reality-based appointment-viewing type stuff, the Survivors and American Idols. These shows are more valuable to advertisers because they can’t be syndicated.
Now we have content-makers bypassing the networks entirely and selling directly to internet subscribers (ala Netflix, Amazon, or Hulu). This leads me to think that content-producers have the most to gain from a cord-cutting trend, and the middle-men the most to lose.
Hockey is the only reason we haven’t cut the cord. There are a few pay services that stream hockey but they black out certain games when they are carried on some NBC relates channels. If they ever get to the point where the streams are reliable without blackouts I could easily cut the cord. Most of what I watch is on Netflix or Amazon Prime (we don’t pay for Hulu anymore-I figure if I’m paying for streaming I don’t want the ads).
@MBunge:
If the old distribution channels become non-viable, does that necessarily mean that the “new” distribution channels won’t be viable too? Seems to me that the entire concept of cord-cutting calls into question just how viable the Comcast/DirecTV distribution channel has become.
Also:
A) Cord cutters don’t really stop paying for things. They just pay people other than the incumbent TV providers.
B) Commercials on TV is the network model. It is not and should not be the model that you choose if you want people to pay you for your content.
C) See my previous comment.
@James Pearce:
I agree that they won’t stop making all stuff. They’ll stop making stuff that doesn’t make them money. Which, if people are paying less, is not an unrealistic possibility.
And AMC et al make their stuff largely on the basis of the cable model that people here are wishing away.
They’re also notably less expensive to produce. Which, if we start twisting the screws on content-producers, we can start expecting more of.
This is about the only thing that gives me quite a bit of hope. But unlike music and books, these shows are expensive. They need to make their money, which is a concern because…
We pay less. Considerably less. But the less we pay is less the result of cutting out the middle man than it is the content-producers having already made a lot of money from revenue streams people are giddy about cutting off.
if Netflix and Amazon can make it work, then swell. It’s not clear to me that they can. I fear that TV will go the way of the film industry, where every bet needs to be a sure one. I’m a bit skeptical as to whether or not it will prove sustainable or scalable the way that cable television has.
Doug, this isn’t a problem–it’s the miracle of the market working. If there isn’t sufficient market for a product, isn’t it right and proper that it should fail or that the people who want it should pony up the payments that represent it’s value to them?
@Guarneri: In what way is cable TV not a market product? It’s more of a market than health insurance because stakeholders (in this case, people who watch TV) are the purchasers whereas almost no one (except captains of industry and noted authors of children’s books) actually purchases their own health insurance.
The fact that shifts in market forces may change the cable business is not the market “coming to the rescue.” Who was the market “rescuing” when automobiles reduced the demand for wagon wheels.
It’s not clear if the above can survive under the cable model. Discovery, History Channel, The Learning Channel, etc. in particular have become completely jokes to anyone interested in their original missions.
The History Channel is one of the most watched networks on cable.
@Trumwill:
It depends. I think long run, this will be scaled for the market. Companies with large subscriber bases, whether it’s Comcast (via NBC) or Netflix, will be able to afford more expensive productions. Smaller companies won’t. It really won’t be that different from what we have now.
This also depends. Before I subscribed to DirecTV (mostly for sports), I was buying shows on Amazon. Didn’t have cable, but I was watching both Sons of Anarchy, American Horror Story, and Justified, not live of course, but week-to-week at least. It was about 3 bucks an episode, 12 episodes a season, all-told let’s just say it was $90 total. Is FX, the channel that produced those three shows, going to get $90 a season from me via my DirecTV subscription? Amazon took their piece, no doubt, but I think FX actually took more of my money that way than they have in the year since I got my dish.
Like I said, it’s all about profit maximization. For the longest time, HBO refused a streaming-only option, fearing that it would cut into their cable subscriber base. Now they have changed their minds. It’s not desperation. It’s a group of very smart guys crunching the numbers and realizing, hey, we can make more money on our own. It’s a clear signal that companies are figuring out to make streaming video a viable business.
Don’t worry. Content will remain king. (It still is in the film business, even if it doesn’t seem like it sometimes. If you’re talking “Hollywood” though, you’re talking the theatre business. And that’s a whole other thing.)
My wife and I “cut the cord” about a year and a half ago. We went from spending about $160/month for internet and cable down to $63/month. That includes $40/mo for Internet, $8 for Netflix, and around $15 for the streaming package for NHL in the winter and MLB.TV in the summer. I have to hide my IP address through a proxy to make the streaming packages work, which I readily admit wouldn’t occur to someone who isn’t already technically savvy. We have to use my father-in-law’s HBOGO account, even though I would readily pay for it if it were available for streaming-only. The only thing we’re out of luck on is monday night football on ESPN and my wife’s obsession with The Walking Dead, which I usually have to torrent for her.
We already had the PS3 for the main TV. The only things we had to buy were a digital antenna ($25 or so) and a Roku for our bedroom TV ($40).
I should also make clear I’m not interested in dismantling the cable business. They will still provide a valuable service, even if it’s just not as valuable as they think it is.
@Trumwill:
Yeah Pawnstars, Ice Road Truckers, etc. may be popular. History they ain’t.
@Len Mizutowicz:
Well, I think that you are very much the tech savvy type that reads OTB.
For me it is as follows:
* Internet – $25.00 / month
* Pivos Xios running Android (as I’m not a MAC) – One time $100 purchase
http://www.amazon.com/XIOS-Streaming-Media-Player-capability/dp/B0088IGPM8
* XBMC / KODI media player – FREE !!! http://kodi.tv/
* 1Channel plugin for XBMC / KODI (unlimited movies and TV Shows) – FREE !!!
* Sports Devil plugin for XBMC / KODI (unlimited sports) — FREE !!!
That’s it. Cord cut. Done.
Can’t get much cheaper unless someone gives you a free box or old laptop with a good video card.
For those that haven’t done this yet, use this as a guide, and the google.
For those choosing to pay more: Is our children learning?
🙂
@James Pearce: The vast majority of people I know who talk about cutting the cord say that they spend less (four people on this thread alone). Sure, there are exceptions, but I think they are exceptions.
I think what’s most likely to occur is a bifurcation of content. Really expensive stuff that appeals to mass audiences, less expensive stuff that doesn’t, and stuff in between not getting made. Not unlike how the film industry has gone increasingly to a “Go big or go home” model with fifty superhero movies (with their built in audiences) coming out between now and 2025.
And to this, I say: BULL$HIT !
1Channel has it all. http://www.tvaddons.ag/
Your current hits, and all the old ones as well.
@James Pearce: I was buying shows on Amazon. Didn’t have cable, but I was watching both Sons of Anarchy, American Horror Story, and Justified, not live of course, but week-to-week at least. It was about 3 bucks an episode, 12 episodes a season, all-told let’s just say it was $90 total.
I don’t think you are grasping the economics here.
You are paying $3 an episode for those shows now. How much would you have to pay to sustain those shows if they weren’t already getting the bulk of their upfront revenue from first-run transmission on FX?
Which isn’t to argue against cutting the cord but, as we all should have learned, economic realities don’t disappear just because the Internet is involved.
Mike
@Liberal Capitalist: For those choosing to pay more: Is our children learning?
And if everyone does it and the revenue stream that supports all that entertainment collapses, what do you think happens next?
Mike
@MBunge:
Mike… I don’t know, but I’m willing to find out. Maybe one less awards show?
Looks like the music Industry has survived the transition and found ways to survive. Artists still produce, and concerts happen.
Technology is disruptive. Always has been, always will be.
In the meantime, I’m not dropping $125 / month on cable.
@James Pearce: Yes, and I watch a lot of episodes of popular programs on the computer. I can even get vintage programs like “A Team”, “Magnum”, and “Hawaii 5-0”.
Many may be aware now of Turner channels being dropped from one of the major satellite providers. Seems like Turner wants more money than the company will pay. CNN has dropped in ratings and I don’t see them working this out. This is probably going to be the same future for most of the news networks, which are mainly slanted opinion programs.
@Will Truman:
That’s my point. Me spending $90 on FX shows was simultaneously less than my monthly DirecTV bill (saving me money) and also provided more revenue for FX than they would have got from my subscription. It cost me less, earned them more.
I mean, think about it. I guarantee you that Netflix made more money off Orange is the New Black via their subscriber base than they would have gotten if the show had aired on a network.
Mbunge says I don’t understand the economics of the situation. The economics of the situation is that content producers can increasingly make just as much, if not more, money building a subscriber base of their own than relying on the subscriber base of the incumbent TV carriers alone.
That’s the theater business for you, which is not necessarily the same thing as the film industry. The film industry is also producing all the “Golden Age of Television” stuff, too, just not distributing it in theaters.
In another age, Game of Thrones should have been a movie. But you can’t release a series of 10 hour movies in theaters. It would be rated NC-17 anyway, and exhibitors don’t show NC-17 films. Hell, they don’t even like it when a movie clocks over two hours.
They do like things with built-in audiences, with global appeal, and if it keeps them coming back, even better. (If you remember, part of the reason the blockbusters of the 70s became blockbusters was because of repeated viewings. Hard to do now, with movies being in theaters for a couple weeks at most. Now, a planned slate of sequels and prequels and team-ups serves that function, “keep em coming back” still being the mantra.)
I guess my ultimate point in all this is that it doesn’t really matter how the industry is structured. It will tend to maximize profits, and it’s not clear that entanglement with an incumbent TV carrier is going to continue driving profits in the 21st Century. Indeed, it’s likely that it won’t.
I mean, I can’t put a timeline on it. Next year will look like this year. Ten years from now, things will look somewhat different but still retain the scent of the old way. Fifty years from now, though, we won’t be watching FX or HBO shows on DirecTV. Not like we are now.
@James:
There is no way that the entertainment media business can sustain it self on $!6 a month from most households in the U.S. Anytime this type of post is made there are a huge number of post from people who claim they are being clever and everyone else should be the same. What is amazing is no one think what happens if everyone did the same as they did.
Also, there is no way anyone can be a sports fan using an antenna. There are very few sports broadcoast over the air these days. The big push in media will be for non-sports fans to stop subsidizing sports fans. The end result will be a much smaller market for sports and a much smaller market for entertainment viewing.
@superdestroyer:
Where, I wonder, does this $6 a month come from? Hulu + is $7.99. I’m paying Netflix almost $30 (streaming plus blu rays). Amazon costs me $99 a year, plus whatever I’m non-Prime videos I’m buying. I’ve also become a devotee of Vudu, converting my DVD collection to digital and also buying newish movies before they even make it to blu-ray.
It can be a considerable expense, but it’s not $2400 a year expensive like a top-tier DirecTV package.
@James Pearce:
The cite above mentioned $16 a month. However, for everyone who believes that they will get media cheaper, they need to do full accounting including the costs of your internet access to be able to use Amazon Prime, Vudu, and Hulu. That is why the cable companies have gotten into internet, phone, and commercial services.
A good example of how ala carte pricing for entertainment could end up making less product. Currently ESPN gets about $5 per month per household that gets the ESPN family of networks. If you estimate 50 million households (cable, FIOS, satellite) that is $250 million a month before charging for a single commercial. That allows ESPN for pay for about 35 college bowl games in December and January. If half of the users of cable or satellite opt out of purchasing livetime viewing, that means that ESPN loses 25 million households. They either have to double their price or cut down on their spending. I suspect it would be a mix of both but the money flowing to professional and college sports will have to be cut.
Also, if every new program has to get viewers to pay to watch their program, there will be fewer programs. The number of revenue streams is shrinking for the media (think about DVD/Blue Ray going away). Thus, the providers have to produce fewer programs and/or cut back on the amount of spending on each program. If cable networks do not exist in the future, then how will produce the content for Hulu and Vudu? Can there be production companies that make and market weekly or multi-hour programming to feed the viewing streams in the future. Or will television programs go the way of magazines where long form stories and investigative journalism will be replaced with quickly written opinion pieces or repeating what the last few real news outlets have published?
@superdestroyer:
Well, let’s just clear this up, okay, because I don’t think it’s really sinking in.
If you want access to 200+ channels, ten of which you will actually watch, it’s cheaper to pay DirecTV. But if you want to pay only for what you’re watching, ala carte style, it’s probably going to be cheaper.
And that’s why I called it a rip-off waaaaay up there. The rip-off, paying for the availability of content you do not and will not watch, is baked into the business model. You guys are telling me that without that rip off, without making me pay for things I’m not using, the whole system will collapse.
Me, I’m skeptical. I ask the “Cui bono” question and from where I see it, it ain’t me and it certainly isn’t the content-producers.
Anyone watch the Walking Dead last night? My viewing was interrupted with multiple “DirecTV is trying to extort us again” messages. Kinda tells you something, don’t it?
@James Pearce:
1) Yes. One of the slower episodes, wasn’t it? I mean, you can see where it’s heading, but … meh.
2) No, sorry, I didn’t see those messages… You see, when you download the torrent, someone is nice enough to already trim out all the commercials.
No commercials. Another cord-cutting benefit for us anarchists out there.
🙂