The Cord-Cutting Fantasy | Hacker News Reader

The Cord-Cutting Fantasy

stratechery.com

23 pointsbitmover59 comments

"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.

You're paying $40 for internet because of the same economics detailed in the article. I'd guess only 1-5% (very generous) of households have cut the cord and are doing what you do. The other 95%+ spend $100+ per month and are subsidizing your internet-only.

At this point, though, there are too few people doing what you're doing to influence content creator behavior. Cable companies are probably making less per unit of content off of you than they are off of cable subscribers, but that's okay: the costs of making the content are essentially fixed, and are paid for mostly by cable subscribers. If they have to choose between getting dollars from you for content they've already made, or not at all, they'll take the money, even if it's less than they'd get from a cable subscriber.

But if everyone does that, the economics of content production totally change. The shows you're buying now might not even get made in the first place.

In other words, the quote you pulled could use some more context: "The truth is that the current TV system is a great deal for everyone [including the current cord cutters]."

Netflix's move into creating content is specifically in response to cord cutters desires. Since they can't convince HBO to give them their content, they've decided to compete directly with HBO. Cord cutters are actually creating new content creators.

That may well be, but two responses: firstly, House of Cards, in particular, was exorbitantly expensive, and a huge gamble on Netflix's part that may or may not turn out to be sustainable in the long term. Second: Netflix is producing way less content than is available on cable. They produce less content than HBO, which is one cable channel among the hundreds that are currently available in the US. They'll never be able to match the breadth of content production cable can pull off, and it probably won't ever make sense for them to produce super-niche stuff of the kind that's available on non-general-audience channels (think the Golf Channel or Food Network). So they're a sort-of partial replacement for a tiny subset of content.

They produce way less content partly because they only recently got into the game. It's unfounded to say that just because they're a small fish means that they'll never be able to make content with neither the breadth nor specificity of other networks.

It's possible less content for less money is OK with people. The current pricing scheme of TV never got a chance to test that hypothesis. It's certainly true for me.

Netflix did well to create House of Cards (and LilyHammer, though that one sucked) - they learn the ins/outs of content creation while also adding a feather to their hat of their big offering - a reason for people to not leave.

The "idea" of Netflix as an exclusive content creator has big ramifications. Nascent competitors like HBO get put "on notice". Amazon, who wanted to disrupt them with Prime streaming are put back on the defensive (most of Amazon's similar efforts are pretty lackluster). And in general, investors like it also, as it means a new possible disruption area for Netflix. Furthermore, employees can be proud of something that's an in-house product/process.

"But if everyone does that, the economics of content production totally change. The shows you're buying now might not even get made in the first place."

I would argue quite the opposite. If everyone switched to 'cord cutting' more content will be made for Netflix, Amazon, Hulu etc, maybe even pushed to all rather than exclusive deals.

"The truth is that the current TV system is a great deal for everyone." I partially agree with this statement. I would remove 'for everyone' here. Clearly for darkchasma, cord cutting was more cost effective. Personally, if ESPN was available online, I would cut the cord because there is nothing else I need from cable.

The OP clearly has the numbers incorrect (only looking at primetime data) but does have a point about a-la-carte prices being higher. However, the assumption here is all viewers are on cable or all are off it. However, with a gradual transition, the price will not have a drastic impact.

Lets assume that ESPN makes itself available online. You might see a flurry of cord-cutters flock to online-only mode but there will still be plenty left on cable. Between the two, ESPN will continue to hit the revenue numbers by refining the cost on each side.

I personally think that over time, the online model will follow cable where content providers will group channels to provide discounted programming.

Over time? The main online properties, Netflix and Hulu, are already even more bundled than cable. For a zero marginal cost item, a la carte makes little sense.

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.

Sure you can get basic cable and the slowest tier of internet for that price, but the cables companies intentionally structure the cable packages to insure that the majority of channels you actually want to watch aren't included in the basic package. I pay $80 a month for the fastest internet connection I can get, and nothing at all for cable because it's a complete waste of my money. Everything I want to watch is available either via Netflix or Hulu whenever I want to watch it, not when the cable company thinks they can wring the most ad dollars out of me.

Why should I pay exorbitant fees to get access to the same content I already have access to at times that are inconvenient for me?

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.

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

I want your service package! With the lowest tier internet possible (25/2), with a godawful provider I've had issues with in the past (Cablevision), and the lowest tier cable possible (to get the "double play" package), will run me absolutely no less than $80/month.

Meanwhile I get vDSL from the telco for $30. I do not and never have watched enough broadcast TV to justify almost tripling the price..

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.

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.

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

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.

Behavioral economics. People are willing to pay $50 for 24/7 access to 40 channels, but they won't pay $1 each for the 50 things they actually watch.

Hm. Apple TV/Amazon Instant Video/GoogleTV seems to put paid to that idea.

At the very least, there is a group of people who are willing to pay for unbundling.

Apple TV mainly used for Netflix/Hulu. Amazon mainly for Prime bundling. So even the online players are going with bundling.

Do you have numbers to back that up? (Not doubting it, just curious - there's not much reporting on that issue)

It works the same way roads and bridges work; collective payment.

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.

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.

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

"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.

Those numbers are most certainly wrong, if ESPN was only pulling 1.36 million viewers a day they would not be doing very well.

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

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.

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.

i wonder if # OF TVS * EVERY SPORTS BAR is what leads to the ESPN viewing numbers being so high. I really dislike sports and it's irritating that I'm forced to subsidize it.

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.

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.

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

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.

You're right. Added this footnote (http://stratechery.com/2013/the-cord-cutting-fantasy/#footno...):

Update: It’s been pointed out, correctly, that I’m talking about unbundling, not cord-cutting. That’s technically correct. However, I think folks who talk about cord-cutting still want the same content. That’s the fantasy I’m referring too. Still, I regret the imprecision ↩

Good point since most cord cut viewing still happens on bundlers (Netflix, Hulu, amazon prime, pirate bay).

"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.

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).

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.

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).

Like I said in a different response, cord cutting makes perfect sense for viewers as long as it's only a few viewers. The production of the content the cord cutters are watching is being subsidized by people who haven't cut the cord yet. That content might not be created in the first place if everyone went the cord-cutting route.

What makes you say that? Cord cutters still pay for the content they consume. All that is happening is we are trading one middle man for another (ABC, CBS, FOX for Netflix, Amazon, Hulu ) Cord cutter content prices will rise as the balance of power shifts.

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...

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.

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.

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.

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).

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.

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.

That assumes consumer behavior remains the same. But we know that people consume much more with all you can eat than with al la carte. And since the marginal cost to deliver incremental households is near zero, a la carte makes even less sense.

"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.

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?

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.

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.

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.

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

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"

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