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Cutting the cord doesnít necessarily mean cutting the cost

June 5, 2017 


Tahlia Hein moved to New York City on a tight budget and without a TV. When she and her roommates finally got one, chipping in for cable on top of a $50 utilities bill per roommate just wasnít feasible. So she opted instead to subscribe to TV streaming services like Netflix and Sling TV.

Cutting the cord, she said, "was very liberating."

Forgoing cable and satellite TV is a decision thatís increasingly common ó 1 in 7 Americans is a cord cutter and an additional 9 percent have never had a cable or satellite TV subscription, according to Pew Research Center. In the first three months of the year, cable and satellite services lost about 762,000 subscribers, about five times as many the same period last year, according to research firm MoffettNathanson.

With the average monthly price of cable or satellite TV hovering around $100 in the U.S., cutting the cord can save consumers hundreds of dollars each year.

That is, until they start subscribing to streaming alternatives.

Cord cutting has been heralded as a consumer-friendly revolution that lets audiences pay only for the content they enjoy. But as the market becomes more crowded and competitive, itís uncertain whether digital-only services will necessarily prove less expensive than the cable and satellite services theyíre quickly supplanting.

That much is clear already to customers who rely on multiple streaming services, such as Hein, who wound up subscribing to Sling TV, Netflix, CBS All Access and Amazon Prime.

"Sling is how Iíve been getting my cable jones for about a year now," she said. "But it was also a hefty subscription to hang on to."

Her predicament isnít unique, according to Ian Olgeirson, an analyst with the Kagan division of S&P Global Market Intelligence.

"Weíve seen consumers complain about spending but at the same time have ramped up their spending," he said.

With more than 130 streaming services (also referred to as over-the-top services), a hodgepodge of sticks and boxes such as the Roku streaming stick and Googleís Chromecast for viewing on television sets, and cloud DVRs, thereís no shortage of products tailored to a la carte viewing.

Video-on-demand staples such as Netflix and Amazon Prime Video have thousands of movies and television shows available at any time, as well as original shows. At just a few dollars a month, they helped drive many to digital alternatives and continue to attract both cord cutters and pay-TV subscribers alike.

Higher-cost offerings such as Sling TV, PlayStation Vue, DirecTV Now and the recently announced Hulu With Live TV are growing in popularity. With base rates around $20 to $40 a month, they aim to replicate the live-TV viewing experience with dozens of channels in real time.

Until recently, live sports programming was nearly impossible to watch without a cable-TV subscription. But now sports fans can get their fix through add-on packages via Sling TV, for $45 a month, and fuboTV, which starts at $14.99 a month.

In addition, there are numerous niche services like Crunchyroll, an anime streaming service, for $6.95 a month; Acorn TV, dedicated to British content, for $4.99 a month; and Curiosity Stream, a documentary platform, for $2.99 a month.

Individually, these services are far less expensive than cable-TV packages. But for viewers whose favorite programs arenít covered by a single streaming provider, the costs can quickly mount.

"Youíre going to see consumers who look at those packages and realize a smaller package is going to ultimately not hitting all buttons they want to hit," Olgeirson said. "Weíre entering a phase of more choice but not one in which consumers have ultimate leverage."

Ultimate leverage would allow customers to pay for just the programs they like: say NFL Football, "House of Cards," local news programming and Nickelodeon. But for now, that could require purchasing an antenna and subscriptions to DirecTV Now, Netflix and PlayStation Vue.

Thatís because of what telecommunications analyst Craig Moffett calls the value chain. Studios make shows, which are bundled to networks, which are bundled to media conglomerates, which are bundled into a broad package from a cable or satellite provider.

"When people talk about unbundling Ö they mean unbundling individual networks from each other," Moffett said. "Customers find it frustrating that selecting individual networks is not one of their options."

And on top of subscription costs, thereís that pesky internet bill.

According to analyst Bruce Leichtman at Leichtman Research Group, in 2016 the average cost for pay-TV service nationwide, including plans bundled to broadband and sold on their own, was $103 per month. And according to Kagan, the price of internet access only, without pay TV, was $52.29 per month in the first quarter of 2017.

So hypothetically, if a cord cutter pays the average rate for an internet-only package and subscribes to Huluís live-TV service ($39.99 per month) and YouTube Red ($9.99 per month), theyíll pay $102.27 ó saving 73 cents per month compared with the average pay-TV bundle. Throw in Amazon Prime Video ($8.99 per month) or any streaming sports service and cord cutting becomes the costlier alternative.

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Itís not hard to find a streaming mix that matches or exceeds the average costs of cable. And streaming prices could rise in the future.

Although broadband rates donít appear to be rising substantially as a whole, thereís a chance that cord cutting could someday lead providers to increase monthly internet bills to mitigate the loss of cable customers, according to a MoffettNathanson report.

With a strong correlation between the amount of video consumed and the internet speed that consumers think they need, providers could possibly upsell customers on costlier broadband packages. They could also increase price of unbundled internet or simply raise prices for everyone.

The Trump administrationís efforts to walk back net neutrality rules ó potentially allowing internet service providers to offer priority treatment to certain websites and services ó could also make streaming products more expensive.

"Without these rules, cable companies will be free to degrade the video quality of any streaming service they disfavor," said Joshua Stager, a policy counsel at the New America Foundationís Open Technology Institute.

That could push customers into costlier services.

Broadband providers, Stager said, "could also force streaming services to pay onerous access fees ó fees that would almost certainly be passed on to consumers."

"Itís a risk to all streaming services," Sling TV Chief Executive Roger Lynch said.

Also a risk: price hikes due to the scarcity of the very content that makes streaming services so popular in the first place.

Netflix, Hulu and Amazon have helped usher in another golden era in television thanks to their ambitious shows such as "Orange Is the New Black," "The Handmaidís Tale" and "Transparent." Theyíve sparked a demand for high-quality and imaginative storytelling that studios are eager to fill.

These shows, however, arenít cheap or easy to make. Despite studiosí efforts to ramp up production, thereís a chance that demand for such programming from streaming services and TV channels will outstrip the supply from studios ó potentially raising costs.

Though competition between streaming services could rein in some price hikes, if costs go up across the industry, expect the viewers to be the ones who foot the bill.

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Questions of cost aside, the cord-cutting trend is only likely to accelerate. Emarketer estimates that cord cutters and cord nevers (people who have never subscribed to pay TV) will grow from 51 million in 2017 to more than 66 million by 2020.

Donít count Hein among that number. After seeing her combined internet and streaming bills climb to about $112, the 31-year-old, who works in digital media, made a call to a cable company, which offered an internet and cable bundle that was $20 more per month than what she was paying as a cord cutter. The cost was greater, but so was the convenience: No longer would she have to futz with different apps to find her favorite shows.

On a recent Friday, she began the transition back to cable.

That said, sheís not ruling out subscribing to streaming services. Hein said sheíd happily shell out for a channel dedicated exclusively to the "Law & Order" franchise.

"I canít believe we arenít there yet," she said. "I would pay real money to subscribe to that."

 

 


McClatchy-Tribune Information Services