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Why You Can't Quit Cable TV

Mari Silbey
6/12/2017
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Want to cut the cord because you just love the idea of Hulu's new streaming service? Or because the only shows you watch are on Netflix and HBO? Congratulations! Go forth and prosper. Cord-cutting is for you.

However, if you want to cut the cord to save a little money on your monthly pay-TV bill, you may want to think again.

Amid signs that cord-cutting is on the rise, I decided to do a little experiment. If I were a new subscriber, how much would it cost me to get standalone Internet service, and what would the price differential be if I added TV to the mix? I wasn't going to invest the time to try to do a precise apples-to-apples assessment (that way madness lies), but I did want a sense of what bundles were on offer, and whether there would be a significant price advantage to cutting the cord for a new subscriber.

The short answer is: No.

In my neighborhood, Comcast Corp. (Nasdaq: CMCSA, CMCSK) is currently promoting standalone Internet service with speeds up to 25 megabits per second for $40 a month during the first 12 months. Tack on another $5 and you get the same broadband service plus the broadcast networks and HBO. Tack on an extra $10 monthly and you get Internet speeds up to 100 Mbit/s, plus more than 100 channels of TV.

The costs go up significantly after the first year, but ironically, while the lowest package and the highest package jump up to $75 per month, the middle one -- with 25 Mbit/s broadband service and 10+ TV channels -- only rises to $65 per month. You still have to add in equipment rental fees for set-tops, but over the long haul, it may actually be cheaper to get TV service with broadband rather than broadband all by itself.

What about Verizon Fios? Verizon Communications Inc. (NYSE: VZ) is finally offering gigabit broadband service, and so the company is advertising its gigabit packages front and center online. For standalone gigabit service, Verizon is charging $70 per month for the first two years. However, for just $10 more in the first year, you can add on a Custom TV package plus phone service.

Pricing goes up to $80 per month for standalone gigabit broadband in the third year, and it goes up to $85 per month for the triple play with gigabit broadband starting in year two. In other words, the difference in price is $10 a month in the first year and $15 in the second year. That's not nothing. It would pay for a Netflix subscription. Want Netflix plus HBO, however? Sorry, that's gonna cost you.


Want to know more about video and TV market trends? Check out our dedicated video services content channel here on Light Reading.


The large cable companies (and I include Verizon Fios here) are under minimal pressure to keep standalone broadband prices low, both in terms of regulatory oversight and market competition. And they have every incentive to use those broadband prices to subsidize aggressive video service promotions. Even if service providers lose money initially on the video side of the equation, they still lock customers into their billing systems, creating an opportunity for future upselling and transactional sales.

What about the price advantage of buying a standalone unlimited wireless broadband plan, you say? Ah, good point. You could quit cable TV, but then you'd probably still end up with an agreement through one of the big telecom carriers. AT&T Inc. (NYSE: T) is only charging a $10 monthly premium for DirecTV Now when bundled with unlimited mobile service. And Verizon? We don't know exactly what Verizon's doing outside of Fios yet, but we do know it has a new over-the-top TV service in the works, and it would be crazy for the telco not to bundle that video with a broadband offering. (See Verizon: OTT on Tap as Yahoo Deal Nears Close.)

Don't forget, cable companies are also headed into the wireless space. They may not be able to bundle TV with mobile broadband yet, but they're putting together all the pieces to be able to do so in the future. (See Comcast & Charter Seal Wireless Pact.)

Think we're headed toward the death of cable TV? Hardly.

I will note that cable and telecom companies are going to suffer growing pains as they swap out some of their traditional TV customers for new subscribers taking skinny, streaming bundles. But over the long term, broadband is pay-TV providers' ace in the hole. And it's going to be awfully hard for any independent video provider to steal away significant market share.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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kq4ym
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kq4ym,
User Rank: Light Sabre
6/22/2017 | 12:24:40 PM
Re: Why you should at least try to cut the cord
Dealing with cable and service providers is pretty much like dealing with a car dealer. Don't expect to really get the advertised prices. Those are come ons to get you to come in and talk to the salesman. The introductory offers are not showing installation costs or added taxes that are usually about 15-17% additional, nor the sercice provider's "fees" which are cleverly worded to look like government fees, but are really provider profit.

 
mendyk
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mendyk,
User Rank: Light Sabre
6/17/2017 | 9:31:16 AM
Re: Chord cutting is very viable
Piracy is at the heart of this issue, whether it's pointed out specifically or not. Just as piracy was at the heart of the decimation of the music distribution business. Piracy becomes legitimized when the consensus perception is that what's being pirated is overpriced relative to its value. It's of course a form of theft, but it's not considered as such because, well, nothing physical is being stolen.
KBode
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KBode,
User Rank: Light Sabre
6/16/2017 | 3:26:19 PM
Re: Chord cutting is very viable
Almost always also omitted from these conversations is piracy. Just because it's not seen as legitimate -- or news outlets don't want to mention it for fear of seeming to advocate in favor of it -- doens't mean it's somehow not an option consumers consider, or doesn't have an impact in the monthly bill for cord cutters. 

A lot of these folks are saving money by picking a few streaming services and pirating the rest of what they want. Because people don't necessarily approve doesn't mean it's not a real thing that's occurring and needs to be understoond when analyzing the subject of cord cutting. 

In most of these conversations piracy is this giant pink elephant just sitting there in the corner nobody wants to talk about. 
KBode
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KBode,
User Rank: Light Sabre
6/16/2017 | 3:20:36 PM
Re: Equipment costs
Yes, most analysis of cable TV prices omit the increased use of "broadcast TV fees" to jack up the cost of the advertised rate post sale. 
mendyk
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mendyk,
User Rank: Light Sabre
6/14/2017 | 3:38:59 AM
Re: Breaking The Box
There's a difference between pointing out a moral inconsistency and throwing a rock.
mendyk
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mendyk,
User Rank: Light Sabre
6/14/2017 | 2:31:13 AM
Re: Chord cutting is very viable
I don't think we disagree. Content creators are owners, even if they ultimately cede rights to someone else. The basic premise of cord-cutting is that the owners' role in the cost of content is secondary to the role that distributors play.
DCulver
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DCulver,
User Rank: Blogger
6/13/2017 | 9:08:09 PM
Breaking The Box
Mendyk, as the Good Book says: Let him who is without sin cast the first stone.

And as economics/technological advances say: Put a beggar on horseback, and he'll ride to hell.
Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
6/13/2017 | 5:49:19 PM
Re: Chord cutting is very viable
I have to pull out my radio/TV degree and disagree on the cost contributors. It's a supply chain -- from talent to production companies to networks to distributors. A book: CBS: Reflections in a Bloodshot Eye, which I read 40 years ago (dating myself) points out some of the economics that are still true today. Talent expects increases at the end of each contract, other costs go up as well. So even a high-rated show will be pulled if the economics don't work out. That's why CBS in the late 60s "cut the corn," eliminating Beverly Hillbillies, Red Skelton, and Green Acres, even though they were better rated than other shows. Decades later, the Newhart show ended because the production company couldn't come to an acceptable arrangement with CBS. Again, the show still had good ratings. 

This is a major reason reality shows are popular for networks -- cost of talent (with exception of hosts) is nil, though there are still production costs.
mendyk
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mendyk,
User Rank: Light Sabre
6/13/2017 | 5:39:05 PM
Re: Breaking The Box
Which commandment covers piracy? The seventh? Or is it the tenth?
mendyk
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mendyk,
User Rank: Light Sabre
6/13/2017 | 5:35:37 PM
Re: Chord cutting is very viable
As cord-cutters are finding, the real cost of video content is driven by the content owners, not the distributors. Hence the false economy of cord-cutting.
Page 1 / 3   >   >>
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