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Video services

Why You Can't Quit Cable TV

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.


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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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