Briefing investors on the value proposition offered by the Barry Diller-backed Aereo, Barclays media analyst Anthony DiClemente questions the savings — and fundemental value proposition — of replacing pay TV with over-the-top services.

Cord cutting / cutting the cord
photo: Shutterstock / artenot

You don’t save enough by replacing your pay TV subscription with over-the-top services to justify the loss of available content. That was the conclusion put forth Thursday by Barclays media analyst Anthony DiClemente, as he broke down the value proposition for litigation-challenged start-up Aereo for investors.

Also read: Aereo TV will stream for months as court case simmers

In his report, DiClemente cast long odds for Aereo, the cloud-based programming service funded by media mogul Barry Diller, which seeks to stream broadcast TV channels with a DVR interface to tablets, notebooks and over-the-top boxes for $12 a month.

Even if Aereo emerges intact from its court battle with broadcasters, DiClemente surmises, it’ll find itself positioned as merely “one more over-the-top distributor” in a realm he feels has limited long-term consumer appeal.

Also read: Suggested trend – “Cord Trimming”

“In our view, dropping cable TV in favor of a bunch of over-the-top alternatives may not result in as much incremental savings as one might initially think,” DiClemente states.

For one, he explains, broadband internet is more expensive as a standalone service. DiClement’s example: if you drop a $60 video service from a $90 pay TV subscription, the internet portion is likely to increase from $30 to $50 a month, negating a third of the savings. The net price of your video ends up being only $40.

Putting together an over-the-top programming package that would include Aereo for broadcast channels ($12 a month), a subscription VOD service like Netflix ($8) and a few movie purchases from a retailer like iTunes (he estimates $10 a month), DiClemente says the combined monthly price of $30 a month doesn’t compare favorably to the net price of $40 a month for pay TV.

“We think many consumers may feel that the incremental $10 of monthly savings is not enough to give up the convenience and breadth of content of the cable bundle,” he writes.

As for Aereo, DiClemente believes that even if it wins the right to re-transmit broadcast signals in court, the “deep-pocketed” broadcast networks could keep it bogged down in appeals for the foreseeable future — or at least long enough to negate Diller’s $20 million investment.

If Aereo were able to prevail in court, DiClemente sees the service as being only marginally disruptive to the current television model.

– Impact on broadcast re-transmission fees would be minimal: “We argue that the cable distributors already make retransmission payments to the TV stations/networks even though consumers can currently watch free-to-air broadcast through their TV sets,” DiClemente writes. “A ruling in Aereo’s favor would not change this.”

– Ad revenue could conceivably be impacted: DiClemente adds that if cable and satellite did lower re-transmission fees in response to Aereo, media conglomerates may begin migrating their premium broadcast content to their cable networks. They would increase the carriage fees they charge multi-channel operators, but they would lose out on the higher commercial prices enjoyed on broadcast platforms.

– Cable’s TV Everywhere initiative could suffer: If Aereo were to achieve widespread adoption, consumers would have a very viable alternative for watching TV over tablets and over-the-top devices, DiClemente argues.

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  1. That $60 figure for the cable tv portion sounds great, but it’s not realistic. This leaves out all the fees and DVR charges and hd addons and yadda yadda that cable companies tack on to their “$59.99″ service. It’s a nickel and dime game, and customers are tired of it.

    1. That’s a realistic figure for a lot of people. I pay $99.95 a month for triple play FiOS with Verizon. Just over $50 of that is for my TV and since I have TiVo, no DVR fees. The only add on fee is $2.99 a month for cable cards. They don’t charge more for HD, it seems only the satellite guys do that.

      1. We are both correct, which is why Mr. DiClemente’s point is not conclusive as this articles says. It’s subject to broad variation and the inset graph is even marked “hypothetical”. At best, his statement is an opinion and should be cited as such.

  2. Television is totally and completely DEAD. Anyone who doesn’t see that now is a fool, or a dinosaur destined for extinction.

    1. timeline? the dinosaurs were here for a longgggggggggggg time…

  3. starbird2005 Friday, June 15, 2012

    What’s also missing is that the $10 you spend on iTunes is for movies that you would still have to pay if you had cable (ditto if you have amazon prime). Our bill used to be around $120-130 per month. Since we cut for the cord internet access is a flat $50, amazon prime $8, iTunes $10 = $68. Totally worth it as more than $300 in savings per year.

  4. And let’s not forget that a big chunk of what’s going on with cord-cutting has less to do with the present-day cable tv value proposition, and more to do with rebellion. I’ll bet the audience is happy to pay someone else for what they get from cable companies, even it’s it’s a little more expensive, just to feel like they have some power and control in their tv experience. Plus, there’s always the stick-it-to-the-man principle, which is probably hard to survey. We all do crazy things when we’re on the defensive. Too many years of cable tv customer rape leads to escape from the prison as soon as someone pokes a hole in its walls.

  5. I don’t know what crack this guy is smoking, but I saved $100 a month when ditching my cable. (HINT: you don’t always have to continue paying for the now-more-expensive broadband. There are often cheaper alternatives.) Considering I don’t watch that much TV to begin with, you better believe I’m reveling in the $7000 I’ve saved since I dropped it five years ago.

    That doesn’t seem so modest now, does it?

    1. doesnt sound modest, but makes one wonder why you paid so much for so long, given that you are so happy to be without it now…

      1. Christian R. Ford Kevin Monday, July 2, 2012

        That’s easy Kevin, same reason I stuck with cable so long, fear of loss and the unknown. It takes a little bit of work to save ton’s of money, dropped my bill from $175 per month, to a lovely $55 per month for everything.

        The biggest reasons people are not swarming is simplicity of cable. Cable believes its a utility and people it treat it as such, you move in, you get your water, electric, gas, phone, next call is for TV. Boom a day or so later, your done they install it.

  6. Vijaya Prasad Friday, June 15, 2012

    Reblogged this on vijaya prasad.

  7. Mitch Thompson Monday, June 18, 2012

    I “cut the cord” almost a year ago, and haven’t looked back. I pay for Netflix streaming, and I have an Amazon Instant Prime membership, mainly because I buy a lot through Amazon, anyway.

    The TV stays off most of the time, anyway. We took our $60/month savings and bought bicycles. Welcome to the outdoors!

  8. This analysis is flawed because the “loss of content options” is exactly the problem, here: consumers are paying for TV they don’t want and don’t watch, and many have Netflix/buy digitally in addition to cable.

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