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Cutting the cable cord: Moving to Internet subscription servies

A small but growing movement of budget-conscious consumers are saying goodbye to their monthly cable subscription Internet subscription services like Hulu Plus, Amazon Prime, and Netflix.
A small but growing movement of budget-conscious consumers are saying goodbye to their monthly cable subscription Internet subscription services like Hulu Plus, Amazon Prime, and Netflix.

When Tammy Zelahy’s “techy” husband suggested ditching their cable subscription, Zelahy was skeptical. She liked being able to pick up her remote and easily access her favorite shows, and she was hesitant to disrupt the routine of her two daughters, who loved watching cartoons in the morning.

It’s been six months since the suburban Philadelphia family decided to finally cut the cable cord, and Zelahy hasn’t looked back.

“It was a scary decision at first,” said Zelahy. “I love shows like 'Modern Family' and 'Grey’s Anatomy.' I was afraid of losing that, but I found out you don’t have to at all. There are so many options out there to get what you want for cheaper or for free.”

Instead of a traditional cable subscription, the Zelahys pay just for Internet service and subscriptions to Amazon Prime and Hulu Plus. They also bought HD antennas, modern-day versions of the classic “bunny ears” and a Roku, an over-the-top device that allows them to stream Internet content on their television set.

Zelahy’s back-of-the-napkin math shows that the family is saving $75-100 a month, even when they have to pay for a season of a show — "American Horror Story" is a favorite — on Amazon.

A small, but growing movement of budget-conscious consumers like the Zelahys are saying goodbye to their monthly cable subscription in favor of OTT devices like the Roku and AppleTV and Internet subscription services like Hulu Plus, Amazon Prime, and Netflix.

The FCC reports that the cost of cable subscriptions has been increasing about six percent annually, and consumers balking at the cost are pulling the plug. A report from SNL Kagan, an industry research group, found that in the second quarter of 2013, the cable industry lost 607,000 subscribers, double the amount of the prior three months.

And experts say that these changes mean consumers can expect to see a wider variety of ways to get TV content in the future, providing more options for consumers at differing price points as providers scramble to adapt to the changing marketplace.

“There’s competition for the living room,” said Rob Aksman, co-founder of BrightLine TV, an interactive television advertising company. “And that wasn’t always the case. People didn’t have options. Now we have a broadening array of ways we can watch TV, and companies are raising the bar. And that is a good thing for TV consumers. The consumer is the one who wins in this battle.”

Pulling the cable plug

Americans love their television. According to a report released this March by industry research firm Nielsen, average Americans spend more than 34 hours in front of a TV per week. But as Web-based options have entered the marketplace, the number of people subscribing to traditional cable TV declined. The SNL Kagan report found that the number of basic cable subscribers decreased by 1.8 million in the past 12 months, and cable’s share of the consumers who pay for service is now down to 55.3 percent, compared with 65.4 percent in 2006.

One of the reasons some budget-conscious are looking to cut cable is that the costs of subscriptions has been on the rise, outpacing inflation. According to NPD Group, a market research company, the average pay-TV subscription bill for basic and premium channels reached $86 a month in 2011. The NPD report said that if the industry doesn’t change, the average bill will reach $123 a month by the year 2015 and $200 a month by 2020.

Some consumer advocates blame the traditional cable “bundling” model, where a subscriber must pay for all cable channels rather than selecting the ones they want to watch. The Canadian government is requiring cable providers unbundle their channels, and Senator John McCain, R-Az., has proposed similar legislation in the U.S.

But unbundling may not be a boon to consumers, and in fact may decrease variety of programming without significantly decreasing cost, according to a recent report called "The Future of TV" by Laura Martin, an analyst at financial firm Needham & Co. Martin said $70 billion — nearly half the industry’s revenue — would be lost, if bundled TV disappeared. This would force many smaller stations to go under, and the estimated 20 stations that would survive, like ESPN, would charge much more than they currently do under the bundle model. Consumers would lose substantial content for little cost savings, the report concluded.

Benefits and drawbacks

Those who have cut their cable cord say the benefits extend beyond simply saving extra cash. Rebecca Hains, a professor of communications and children's media culture at Salem State University, said she cut the cable cord partially to save money — she estimates about $2,500 over the last three years — but also out of concern for her two sons.

She said that experts in children’s media culture are troubled by what she called “the commercialization of childhood,” such as ads targeting children that aren’t in their best interest, like those promoting fattening foods or toys that have a limited range of uses and discourage creativity.

“On cable networks, kids are slammed with commercial after commercial, and it’s a problem,” she said. “I think it’s terrific that there aren’t commercials on Netflix and Amazon Prime. My kids can watch 'Dora the Explorer' and 'Blues Clues' without getting the ads I don’t want them exposed to.”

Hains said that she also has peace of mind that her 5-year-old won’t have access to shows that aren’t appropriate for his age.

“I didn’t want my children to just aimlessly surf cable channels because who knows what they’ll stumble upon,” she said. “Their consumption is so much more purposeful this way.”

But cutting cable might have major drawbacks for some viewers. For live sports on channels like ESPN, cable and satellite are still the only real options. And while the Internet is providing a way for people to get out of traditional television viewing, Aksman said it also is creating an incentive for people to watch programming in real time due to social media phenomena like “live-tweeting,” where viewers post their instantaneous reactions to shows on Twitter.

“There’s a social media buzz urgency to watch a hot show the night it airs or risk having it spoiled,” he said. “Social media behavior creates a need to watch it at the same time for the real-time water cooler effect.”

Hains said she’s very into social media, and admits she gets a lighthearted pang of “poor me” when a friend posts about watching a show in real time that she has to wait a day or two to watch through her streaming subscriptions.

“When something like the season finale of 'Breaking Bad' is on, I have to avoid looking at anyone’s Facebook page, and that’s a drawback. But,” she quickly added with a laugh, “I like $100 in my bank account more.”

The future

While there are growing numbers of people cutting their cable subscription, a traditional cable package is still the dominant way people get their television content. The 13 largest multi-channel video providers in the U.S. still represent 94 percent of the market, according to Multichannel News.

And cable companies are not going to complacently sit around and watch their market share decrease, said Aksman.

“People seem to be writing off the Comcasts of the world as irrelevant, but they’re not asleep at the switch. They’re building connected platforms and upgrading their services just as quickly (as web-based services),” he said.

But the way people watch and pay for television is fundamentally shifting, according to experts, and the future of television will have to adapt to changes in technology, budget and viewing preference.

According to a recent Nielsen report, people with OTT devices are “binge viewing,” with 88 percent of Netflix users and 70 percent of Hulu Plus users report streaming three or more episodes of the same TV show in one day. The same report found that 58 percent of users “prefer to view shows when they do not have to abide by schedules other than their own and can watch several episodes consecutively.”

People are also shifting toward watching television on-the-go. The Future of TV report found that video on mobile devices such as smartphones and tablets is exploding, comprising 19 percent of total video views in the first three months of 2013, compared to three percent over the same period in 2012: “The future is all about watching video on mobile devices,” the report said.

Aksman said we’ve barely scratched the implications of what the future of TV watching will look like. He added that with all the changes in viewing habits and competition facing the traditional cable bundle, TV watchers are going to have a greater number of ways to tune in.

“Right now is probably the best time ever to be a TV viewer,” Aksman said. “The options and customization are at whole new level, and that’s only going to increase over time.”