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Summary:

The secret to making cord cutting mass market is for over-the-top video to become a little more like pay TV, but without the high price. With these week’s news, it looks like we may be inching closer to that reality.

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While most of us in the world of tech generally fixate on what’s wrong with pay TV, it doesn’t hurt to examine what’s right. After all, if this cord cutter thing is to ever go mainstream, it helps to know what the competition is doing.

So why exactly do people pay for TV? Surveys show that consumers subscribe mainly because they value the bundle of content they get from their pay TV provider. Lots of channels, reliably delivered, with an easy-to-use interface.

And when you examine what consumers like about pay TV and what they like about the most popular over-the-top video services like Netflix, it’s actually comes down to much of the same thing: lots of content bundled together for them in a subscription package.

While pay TV generally provides more content than say, Netflix or Hulu Plus, these two over-the-top video services offer, or are trying to offer, a bundle that satisfies consumers enough to entice them to subscribe. And it’s when these subscription services become replacement services for the mass market rather than augmentative (which is what they are for most today) that things get interesting.

In order for OTT content bundles to become mass market replacement services, consumers need lots of choice, be it horizontal choice — meaning a wide variety of content — or vertical choice — meaning deep content targeted at niches — like sports fans.

And this week’s news shows that companies like Apple understand this. Apple’s deal to bring both Major League Baseball and NBA to the Apple TV is important because sports, particularly live sports, is one of the biggest reasons consumers get pay TV. By providing access to entire seasons through a subscription (at a price roughly equal to a monthly bill to a low-end cable package), this could entice more to cut the cord.

And it’s the live aspect of Apple’s announcement that is the biggest news, because it shows that Apple could provide live streaming of video channels as they are broadcast, allowing them to create a wider content bundle of linear channels for consumers that resembles, well, pay TV content bundles.

Microsoft, too, is apparently continuing to work towards creating a subscription service of linear channels for the Xbox 360, something the company has been working on since at least last fall. With an installed base close to 50 million, that’s a huge potential number of subscribers for any OTT video bundle.

So the secret to cord cutting becoming mass market is for over-the-top services to become a little more like pay TV, but without the high price (because that’s the main thing consumers don’t like about pay TV).  With this week’s news, it looks like we may be inching closer to that reality.

Read my weekly update at GigaOM Pro (subcription required) to read more about the value of content bundling in online video.

Image courtesy of flickr user jonlclark

  1. i personally HATE the current package structure that pay tv offers. it feels like a complete rip off. the only reasons i keep my current pay tv subscription is i can’t get the few specific shows i want anywhere else without it being a hassle.

    so far netflix has done the best job of reducing my reliance on torrents to get the content i want. hulu offers the autoplay feature that i’m wanting from netflix to allow for continuous tv noise without me having to figure out what to watch next.

    i guess the main reason why i feel that pay tv is a ripoff is because i have to buy a more expensive package to get the content i want. so all of the bragging about how many channels i get with this higher package causes me to focus on that.

    i want like 5 of the channels in the 150 channels i get. of those 2 aren’t also available in the cheaper package. of course those two are the main reasons i subscribe. and it costs twice as much.

    and all of the appologetics that the sales and support staff offer fall well outside of my use case. i don’t browse any of the other channels ever. if there’s not something i want on the channels i currently care about i’ll go to netflix or hulu.

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    1. @Sophi – I think you’re representative of alot of people in that you still get payTV for a few channels you can’t get outside of the payTV bundle.

      I think a la carte packaging of independent channels is another interested and related conversation to the bundle conversation. The very fact that people get the 5 or 10 or 20 channels they want in a payTV bundle and can do without the rest pretty much represents the majority of payTV users. That’s why I think the payTV industry hates the idea of a la carte and is resistant to putting key channels available online outside of their payTV/TV Everywhere packages.

      This is why full sports seasons packages is so very interesting – its a key type of content that holds people captive to their payTV package. The only problem with Apple’s efforts are the blackouts, but otherwise I think it’ll be interesting to watch and see if this causes an uptick in cordcutting.

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  2. Mitch Thompson Friday, May 6, 2011

    I’m working towards cutting the cord, at home, and I can say that the number one obstacle to getting approval from my wife and family is the “hassle” of: switching the TV to the Roku box, going to the “channel” (Justin.tv, for example), finding a show, selecting it, then WAITING for it to start streaming.

    We currently have uVerse, which is a start, since it’s IPTV(-ish). It’s got the advantage of “instant on” channel switching, which makes it easy for my non-techie family to use.

    I’m using the “cook a frog” method: an outdoor TV antenna goes up this weekend…

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