

The Cord-Cutting Fantasy - bitmover
http://stratechery.com/2013/the-cord-cutting-fantasy/

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darkchasma
"The truth is that the current TV system is a great deal for everyone."

No, it isn't. I cut the cord, and watch media on Netflix & Hulu and buy 2-3
shows on iTunes. To get the same number of movies and series on TV I was
paying for a $100+ per month cable bill. Now I'm paying $40 for internet and
$8 for Netflix and about $6 per month from iTunes TV shows. So I get a better
experience, can watch what I want when I want it, and pay about half of what I
used to.

~~~
pbreit
I get cable AND Internet for $55/month (including espn and amc). People who
claim cable is expensive seem to be unwilling to lessen their bill.

~~~
amalcon
Where do you live? Cable Internet _alone_ would run me a minimum of $50/mo. at
the slowest speed, ignoring the introductory rate. The cheapest package with
TV runs almost $100/mo after the introductory rate expires.

~~~
pbreit
Comcast San Francisco, outside intro rate. Tv + 20+ Mbps Internet.

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groby_b
There's something odd about those numbers - if really _all_ of those channels,
including ESPN, are too expensive to be financed by just their viewers at the
current cost level, and each household would pay more for just the things they
want... Where exactly does the money for those channels come from?

The logical conclusion would be that large numbers of people never watch their
cable TV at all and just subsidize entertainment for the rest of us. I don't
think I believe that, given U.S. entertainment consumption habits.

~~~
nemothekid
My hunch is OP's calculations are right, but his numbers are just wrong. I
have a tough time believing ESPN only penetrates 4% of American Households.

Looking at his sources I think OP's error comes from the fact that he is using
Primetime viewership as a metric. I'm going off assumptions here, but I would
think that ESPN's major value add is huge number of people watch ESPN at all
times of the day. SportCenter, for example, doesn't air during primetime, but
airs continually throughout day.

Looking at the Primetime numbers, The History Channel scored higher than ESPN.
However I would guess at all other times in the day, ESPN has a much, much
higher viewing audience at other times of the day.

~~~
monkbent
Yeah, I should have been clearer. It would lower the a la carte price, but it
would still be a pretty unsustainable number.

~~~
groby_b
At the very least, you also need to look at how much of the programming is
original vs. reruns of already existing content.

I have a strong hunch that if we actually did these numbers, we'd see that
there are a few programs that are way more expensive to produce than others.
(ESPN and sports licensing fees come to mind).

Which means bundling artificially props up overpriced content - I'm really not
sure how you can come to the conclusion that that is good for everybody.

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acgourley
A la cart distribution is _good for consumers and content creators_ , and is
_bad for networks and cable providers_

Consumers - Cheaper for _most_ consumption patterns.

Content creators - Flexible release schedules, deep viewer analytics, more
power over networks.

Networks - Only remain relevant as publishers and speculative content
investors.

Cable providers - Each hour of TV viewed will earn more money, but less hours
will be viewed. Quickly are turned into dumb pipes.

So what happens? Networks and cable providers are going to hold on for dear
life, while consumers and creators are going to route around them.

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enoch_r
The author's claim is that, if we split the price of our meal evenly, we'll
all be better off than if we each pay for our own portion.

It may be true that splitting the price encourages us all to eat more, and pay
less attention to price. That increases the demand for everything, and
expensive options in particular (the lobster and filet mignon).

It's entirely possible that switching to a "pay-for-your-own-meal" model would
reduce the amount of food people buy, and possibly even end with the expensive
options being removed from the menu.

But our current situation isn't better for everyone--it's just better if you
really like to eat, and especially if you really like to eat expensive things,
because you'll be subsidized by the people who just get a salad.

~~~
pbreit
Except there's a huge difference: cable tv is a zero marginal cost business.

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ssharp
"Last week, ESPN averaged 1.36 million viewers a day, which is 9.52 million
for the week, or about 40.8 million for the month."

No, this is wrong. The linked article where this stat is pulled showed an
average of 1.36MM viewers during prime time. That's only 3 hours of the day.

I'm not familiar enough with TV metrics to speak to this, but I don't think
standard metrics that are public are going to give you the kind of data you're
looking for here.

Just from anecdotal evidence, I don't see anyway that only 4.8% of cable/sat
households tune in to ESPN at least once a month. I'd have a harder time
finding a family I know where no one in the house watches ESPN than a family
where someone in the house does.

~~~
pbreit
My family, my wife's 4 sisters' families, her mom, my mom = zero ESPN viewing.
Moving on to friends...

~~~
ssharp
Are all these families cable subscribers?

And the number essentially means 19 of 20 "cable families" have zero ESPN
viewing. Maybe I'm wrong, but I don't see that being a realistic number the
methodology that created the 95% statistic wasn't exactly solid.

~~~
pbreit
Yes, all cable subscribers.

I suspect people tune into ESPN occasionally (a "luxury" made possible by
bundling) but would not choose to subscribe to it separately.

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stephengillie
If ESPN really is "the sole reason many people have cable", then why do only
"4.8% of households" watch the network? There's something odd about this
article.

~~~
apendleton
Only 4.8% watch in any given week. More watch at some point over the course of
the year (perhaps when different sports are in season), and most people who
exhibit that behavior probably can't be bothered to unsubscribe for the part
of the year when the events they want to watch aren't on.

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gwillen
Article is actually about unbundling, not cord-cutting. Author does not know
what cord-cutting is.

~~~
jeffesp
You are correct. You can also look at it as if I am going to unbundle, why
would I need a cord? We (essentially) have a pipe from the internet to our TVs
now, so just use that cord for the individual things you want. Maybe the
author has that perspective, even if the terminology is incorrect.

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vonskippy
"Except for one little problem: the economics of cord-cutting simply don’t
make sense, for neither networks nor viewers."

I think he doth protest to much.

Cord cutting makes PERFECT SENSE for the viewer.

We haven't had Cable/Sat in our house for over 5 years. Don't miss it (or it's
outrageous cost) a bit.

~~~
ssharp
Cord cutting sucks for people who like to watch live sports in the US.

We've been cable free for a little over a year now and I've missed two sets of
NBA playoffs. I chomp at the bit to watch playoff basketball for two months
and finally get my fill when the Finals come and are put on a broadcast
network (ABC).

If I want to pay to watch the NBA playoffs without cable I can, I just have
buy an NBA League Pass (which I'm cool with) and then pay for a VPN service
and route all my traffic to another country (which I'm not cool with).

~~~
jenningsjason
Sports is how cable (and satellite) empires are built. Take, for example, the
NFL Sunday Ticket on DirecTV. The NFL has sold exclusive rights, in the US at
least, to DirecTV. Hardcore NFL fans, and there are a lot of us, wouldn't even
consider cable, let alone cord cutting, until NFL Sunday Ticket is available
through some other distribution network.

The same is true in the UK for Premiership Soccer, and I'm sure it's true for
other sports in other countries.

~~~
GFischer
If Netflix had live soccer here in Uruguay, it would put all cable providers
out of business - it MASSIVELY underprices them and has a vastly better
service.

It's currently about U$ 40 for the cable tv basic package, as there's a
flaunted "oligo"(mono)poly here, which even managed to outlaw Carlos Slim's
company - he doesn't care because Uruguay is not a relevant market.

Local football matches and European football drive a lot of cable packages,
along with HBO and kids' shows and series (which are mostly available on
Netflix).

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OperationsGuy
I've recently I stopped subscribing to cable services about a year ago for
several reasons:

1) Poor User Experience 2) Too much mind numbing content 3) Price 4) Ad(s)

Poor User Experience

While this isn’t true across the entire industry the few places I’ve lived
have had terrible set-top-boxes. It has never made since to me that I am
forced to use an interface that looks like it was designed in the late 90s.
The guide is slow and has very few customization options. Direct TV did have a
pretty good guide when I briefly had satellite which isn’t available in my
apartment. Past Cable Companies: Longview Cable TV, Suddenlink, Grande
Communications Link to horrid cable box that most of the providers I’ve
subscribed to use. [http://telecomlead.com/wp-
content/uploads/2012/10/motorola-s...](http://telecomlead.com/wp-
content/uploads/2012/10/motorola-settop-box.jpg)

Mind Numbing Content

I really don’t need to catch up on “Storage Wars: Texas”. After a long day, I
found myself mindlessly scrolling through the guide and selecting some
mindless show. I realize this there is other content available and I made the
choice to watch the show. The point I am trying to make is that TV wasn’t
contributing anything to my wellbeing. I’d much rather fire up a PC game and
at least engage my brain while blowing off some steam. It feels wasteful to me
to pay for 200+ channels and only utilize 3-5 I found myself watching less and
less TV. I thought I would miss sports(ESPN) but I’ve found that I really
don’t. It turns out that was just something I did to kill time. When I turn
ESPN news is on @ a coffee shop, I realize how similar it is to CNN headline
news. The newscaster regurgitates the same information in a new wrapper and
explains why this is supposed to be “important”.

Price - Ads

Advertising was really the kicker. Commercials are so terrible. At the risk of
sounding like a tinfoil hippie, I got tired of having the messages massaged
into my head about why I need X new product to be a real man. Ford, lay off, I
don’t care it is “Truck Month” again.

The experience of sitting down and watching TV has really gone downhill. I pay
to use a poorly designed user interface which has the audacity to display
Advertising on the guide. For me, I’ve never felt valued as a cable TV
subscriber. So, I decided to cut it. Ad on the guide:
<http://imgur.com/wIctmj1>

I still watch Comedy’s like New Girl, Mindy Project and The Big Bang Theory.
I’ve purchased all three seasons of “The Walking Dead”. I purchase season
passes via iTunes. Who cares if I don’t see it the day it comes out? The great
thing is, I get to keep these shows and I watch them Ad free. That is a BIG
plus in my book. I haven’t done the math to see if I am saving money but I
feel that I am getting what I want with the money I do spend. I can take my
apple TV to any house with internet an instantly access all of the media I’ve
purchased. That is awesome. To me, it is worth it to pay a bit more to strip
out all the ads and have the convenience of watching it on a ton of devices.

My point is I want to “reward” a company with money if they provide the
features I am looking for, in this case Apple + the Studios. I want the cable
industry to change into something that belongs in this decade, so I give them
less money. (I say less because they do provide me cable internet which isn’t
bad.)

The end of the ramblings

I am not sure if there is “theme” or point I was trying to make here. I am an
ex-unhappy cable customer. I love consuming media, the distribution methods
just need to be tweaked to something that makes more sense in this day and
age. I understand the author is trying to say it isn’t economically viable to
cut the cord because the current system is the best for everyone but I just
don’t buy that. I refuse to believe that.

At any rate, thanks for writing the article, I enjoyed reading it but I hope
you are wrong.

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cwe
AMC is a terrible example for this, because their shows are available on
iTunes a la carte right now. I have 'cut the cord' and still get new Mad Men
episodes thanks to iTunes. I can directly support the show--not even the
network--that I like. That is the cord-cutting ideal. Consumers don't give a
shit about networks and their profits, we want the content we like at a
reasonable price in a timely fashion.

~~~
ssharp
One thing I hate about buying shows on iTunes/Vudu/etc. is that I don't want
to OWN them, I just want to watch them. The $2.99 price may be fair for
ownership, but for a show I probably only want to watch once before it's
available on Netflix, $2.99 seems like a lot.

~~~
cwe
True, especially since Mad Men ends up on Netflix a few months later.

It's even worse with movies; most you can't rent, and buying them costs as
much or more than buying DVD's or Blurays (if you impulse buy on sale, which I
always did).

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GavinB
The numbers here don't make sense. Most people are paying $50 per month for
cable, which supports the current industry. If they all switch to paying ~$50
per month in a different model (whatever it is), an industry of the same size
will be supported.

The subscription "all you can eat" model is great. The thing that needs to
change from current cable is that I should be able to watch it wherever and
whenever I want (and pay not to have ads). The issue right now is that the
contractual relationships are so complex that no one is able to cut through
the mess to put together the right offering.

~~~
brandon272
I really don't think it's a cost issue. It's a lack of choice issue. I pay
about $65 a month for IPTV service (plus another $15 - $20 a month for the
privilege of having HD channels and to rent a few set-top boxes) and I still
don't get at least a few "premium" channels that I would really like to have,
just because I am at the upper limit of what I'm willing to spend. I don't
want to be force fed a bunch of channels I will never watch. The model is
broken.

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mrab
"Except for one little problem: the economics of cord-cutting simply don’t
make sense, for neither networks nor viewers."

Actually, it makes perfect sense for the viewers - the networks are the ones
that it inconveniences. People simply won't pay the increasingly high rates
which are borderline ridiculous. You could get a nice used car for the same
monthly payment of some of these internet/cable bundles.

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phamilton
The missing variable is the cost of providing content 24/7. In an on demand
setting, I imagine total revenue may drop, but production costs would also
drop.

I may be way off base though. Does anyone with more experience wish to correct
me?

~~~
danielweber
When you look at the costs of television, the marginal costs to keep on
transmitting a bundle of channels to everyone in the neighborhood is a
rounding error.

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6cxs2hd6
The economics remind me of trying to cut government spending:

> Only 4.8 percent of households watch ESPN. If ESPN were only available a la
> carte, each of those households would have to pay $101.60/month for ESPN to
> achieve the same revenue numbers they do currently > The 95.2 percent of
> households who don’t watch ESPN would only see their cable bills decrease by
> $5.13 were they able to exclude it

Is like: Cutting XYZ program would significantly hurt a small group, who
understandably protest. It would save each taxpayer only $1 a year. So it
probably doesn't get cut.

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6cxs2hd6
Aereo.com just launched in Boston last week. I was excited thinking, _this_ is
how I can cut the cord and still watch sports. Then I realized how little
sports is on broadcast anymore. Try watching hockey playoffs.

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pbreit
People who think they want a la carte pricing have no idea what they are
talking about. This post makes he case nicely.

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bluntly_said
Even assuming the numbers here are correct (and I'm rather skeptical) it means
that channels like ESPN are getting heavily subsidized by cable subscribers
who aren't interested in that content. That's not a win to me. That's my money
going to produce shows that I don't like and don't want to watch.

If ESPN is unable to sustain the level of content/quality they currently show
without huge subsidies, they shouldn't be making it. The subsidy to ESPN
implies that channels and shows that I DO WATCH are not receiving a fair
amount of my bill for the time I spend watching them.

This is not a "better for all" type of socialism. It's a "better for the
entrenched" type of taxation.

To reiterate a common theme in the comments: "A la cart distribution is good
for consumers and content creators, and is bad for networks and cable
providers"

