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Barclays: Cord-cutting isn’t worth the modest savings

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.

16 Responses to “Barclays: Cord-cutting isn’t worth the modest savings”

  1. I used to pay 120 dollars a month back in 2009 which was supposed to be 30 dollars a month for Cable tv but only if you bundled it with phone and Internet but after they were done with taxes and the charge for the Internet modem and the cable box’s it was never the projected 100 dollars a month and if I wanted tv alone it went to 89.99 to be able to get the 3 channels we really wanted with locals, not to mention customer service was non existent and if there was ever a problem it would take 3 days and they would be there between 7 in the morning and 8 at night, I finally had rough after 5 years of there crap and early 2009 I cut the cord and hooked up a computer to the tv if there was ever a problem I was the repair man I’ll never go back not until they drop there prices and I can buy the channels I want without tons of crap I don’t want and I guarantee you my 25 bucks a month compared to the 125 is more than chump change over 12 months a year going on 4 years

  2. seitzeeing

    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.

  3. Mitch Thompson

    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!

  4. 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?

      • Christian R. Ford

        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.

  5. 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.

  6. starbird2005

    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.

  7. 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.

    • 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.

      • 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.