Earlier this week, I examined the recent coverage of the “cord-cutting” phenomenon. What I wanted to do was look at two questions:

• Can you really replace your cable service with just online video?
• At the present time, is this really a widespread phenomenon?

On Tuesday, when I addressed that first question, I came to the conclusion that it would be difficult to replace all the programming accessible through multichannel video by just relying on online sources. Now it’s time to look at the second point. As I suggested previously, it’s helpful to read our previous posts on cord-cutting:

• The Roles of TV and the Internet
• More Cord-cutting Coverage
• Should All Content Be Online for Free?
• Are Stories of Cable “Cord Cutting” a Myth?

How Significant Is the Phenomenon?

In my last post, I noted that the perception is that tons of television content are available for free online, but the reality is that this is not completely true for cable programming. It’s also true that, in some circles, there is a perception of large numbers of consumers fleeing cable (e.g., “Cord cutters flocking to online TV at the expense of cable“), but the reality is quite different.

Yesterday, CTAM released a new study entitled Crossing Over: Understanding Viewer Multi-Screen Migration, based on research conducted by The Nielsen Company. The media release for the study says, “The study identified eight distinct broadband user segments, determined by their levels of engagement with video content across TV, online and mobile platforms, the devices they used to consume content and their motivations for and attitudes toward using multiple platforms. ” About 8% of broadband users are identified as belonged to the group “Extreme Techies;” these people are identified as technology innovators and are the most advanced group in their consumption of online video.

How much do the Extreme Techies watch online? As noted in this Hollywood Reporter article on the study, they watch “up to 91 minutes (1.5 hours) per week, compared to the mean of 44 minutes.” That’s it. Overall, 58% of TV viewing time is spent regularly scheduled programming on a television; 20% through use of a DVR; and 6% for online video.

You might think that really young people would skew differently, but a recent survey conducted by analyst Bruce Leichtman found otherwise:

In a nationwide survey of 1,250 broadband households and separate sample group of 250 teens aged 12 to 17, Leichtman found that only 8% of respondents watch repurposed TV shows online, compared to 24% that watch news clips, 20% who view user-generated clips on YouTube and 15% that watch sports news or highlights.

The title of Leichtman’s report? The Phenomenon That Isn’t.

You might have also read about a recent Nielsen Three Screen Report shows that people are still watching TV, on a television set. Or you can check out this SNL Kagan chart on video subscriptions and notice that there doesn’t seem to be a significant decline in people subscribing to cable service. There was a Craig Moffett report written in February that said, “The Fourth Quarter of 2008 may someday be remembered as the quarter when video cord cutting… didn’t happen.” Or you might use your common sense and notice that we live in a time when sales of big-screen hi-def TVs and HD content is on the rise. You might then ask why you’d want to watch all your video on a laptop or a 24″ computer monitor instead of on a high-definition television.

And yet there was also a WSJ story yesterday: More Households Cut the Cord on Cable.

Quote One:

In what’s shaping up as the home-entertainment equivalent of severing a landline phone service, more people are joining the ranks of “cord cutters” by forgoing cable subscriptions that can run $60 or more a month.

Quote Two:

The number of cable cutters remains too small to threaten the pay-television industry.

Quote Three:

Those who end up cutting the cord do pay a price in entertainment. Pay-TV services, like cable and satellite, still carry more live events, TV shows, movies and other content for viewers to watch than what’s available online. Web TV also doesn’t offer as much high-definition content as pay TV… Some would-be cable cutters have pulled back at the last minute, in part because live events like sports are hard to find online.

I think Will Richmond summed it up nicely in the title of a recent blog post: Video Behavior Changes Suggest “Evolution,” Not “Revolution” For Now.

As I mentioned last time, online video is a wonderful thing. If you only watch broadcast TV or if you only watch a few shows, then cord-cutting may be the perfect solution for you. Otherwise, it seems more like a complement to some kind of multichannel video subscription. For robust delivery of high-quality programming to a lot of simultaneous viewers, cable is hard to beat.

For more on this issue, see recent articles from Aaron Barnhart (”Cord-cutting is an urban legend … for now“) and Carol Wilson (”Cable cord cutting debate rages on“).

Online viewing of video is on the rise. This is a fact.

But if you take the news coverage and blog posts about the “cord-cutting” phenomenon at face value, you would have the impression that this is a widespread phenomenon involving millions of consumers canceling their multichannel video subscriptions in favor of online distribution. I certainly think the issue of online video is worthy of examination, but these articles on cord-cutting seem predicated on two arguments:

• You can easily replace your multichannel video subscription by going online.
• Significant numbers of people are choosing to “cut the cord.”

I thought it would be useful to address this issue again, but this time to split the topic in to two parts. Today, I’ll look at the content portion of cord-cutting.

I also think, before I go any further, I ought to link to our previous posts on this topic:

• The Roles of TV and the Internet
• More Cord-cutting Coverage
• Should All Content Be Online for Free?
• Are Stories of Cable “Cord Cutting” a Myth?

Is Everything Online?

In online circles, there is the impression that almost anything can be found through the Internet. The Library of Congress is “the largest library in the world, with millions of books, recordings, photographs, maps and manuscripts in its collections.” Only a fraction of that material can be found online. The same is true for TV content.

I love online video. I catch up on episodes I miss, do time-shifting while traveling, check out shows that friends recommend. But, there’s an important distinction to be made here: If you’re talking about TV shows streamed free online, that category largely consists of over-the-air broadcast programming from networks like ABC, CBS, NBC, and FOX. (For some reason, The Big Bang Theory is MIA. What up?) Some cable networks do offer some shows online. But not nearly as much as broadcasters do, as noted in this recent Washington Post article on cord-cutting:

Thanks to dozens of videocasting Web sites, such as Hulu, TV.com, Joost and Fancast, full-length episodes of more than 90 percent of the shows carried by the major broadcast networks are legally accessible within a day of being broadcast, according to Forrester Research (only about 20 percent of what’s on cable is similarly available). [emphasis added]

Let’s say I want to watch news. On my way to work, I’ll watch the previous evening’s Countdown and The Rachel Maddow Show on my iPod. But suppose there’s a breaking news story? You can’t watch live streaming cable news. I don’t care about sports, so it doesn’t matter to me that you can’t watch sports programming online. And while some cable programming can be found online, much cannot.

So, the perception is that tons of television content is available for free online, but the reality is that this is not completely true for cable programming. The extra irony is that since the 2001/2002 TV season, the ratings for cable networks have topped those of all national broadcast networks collectively. For the ‘07/’08 season, U.S. homes spent an average of 38.6 hours per week – on a total day basis – tuned in to ad-supported cable networks compared to 26.7 hours per week for all commercial broadcast sources combined.

So, the programming available through broadcast television, with viewership that has been steadily declining over the last 15 years, is freely available online. The programming of cable television, whose viewership has been on the rise for that same period? Not so much.

Why Isn’t All TV Online?

Once you’ve addressed the question “Is all video online?,” you then have to ask, “Why isn’t it all online?” You might take a look at this Online Media Daily article or my recent post on the issue: A Lively Debate About Online Video. But the short answer is that there’s currently a specific business model for cable programming. Most cable networks have a dual revenue stream from advertising and from subscriptions. Right now, although companies are experimenting, moving all their video online for free doesn’t seem to make economic sense.

James Ledbetter accurately addressed the central problem in a recent column: Call It Free, But It Will Cost You:

The problem is that — outside of a handful of examples, almost all of which are Internet- or digital-based — giving things away does not work in any significant way. Here’s why: Just about any activity that merits the title “business” has a cost of producing its goods or services… Businesses need to recover labor and capital costs, and giving things away for free doesn’t meet that need.

Ledbetter talks about how this applies to the business of law or oil, but the television industry absolutely needs to recoup productions costs.

It seems to me that a key factor in cable’s success has long been our original programming. SpongeBob SquarePants, Iron Chef America, Hannah Montana, SportsCenter, The Closer, or Burn Notice – people love cable shows. Those shows cost money to produce; if the revenue for those shows decreases, then their existence may be threatened.

There’s a lot of original video available online and some it is quite good. But where are the online shows that have the quality of these cable shows? It’s not because of talent; it’s a question of how you pay for such programs. To quote again from the Post article:

…there are significant financial questions about whether “free” online video can ever become a viable business. One problem: TV shows that migrate online carry fewer commercials — often no more than two minutes of ads per half-hour program, compared with eight minutes on conventional TV. While the research company eMarketer.com predicts that online video sponsorship will grow 44 percent to $850 million this year, that’s still a tiny fraction of the $70 billion spent on cable and broadcast TV ads in 2008.

And a recent Daisy Whitney column discussed how digital studios that produce online video are struggling with the economic reality that “There’s just not enough money to go around on the Web.”

Some people seem to prefer to see cable operators as hostile to over-the-top online video. NCTA’s President & CEO Kyle McSlarrow recently addressed this point on this very blog:

…it is somewhat tiresome to have Free Press repeatedly assert that every effort by network providers to examine any new approach or idea in our or related industries is somehow designed to protect against the supposed “threat” of “Internet video.” This is so stale, and so at odds with the facts, that it really should not be necessary to point out the obvious:

• Over the last few years, the use of broadband connections to view Internet video has grown at a faster rate than any other application. According to one estimate, traffic generated by YouTube video in 2008 alone was more than the sum of traffic crossing the Internet backbone in 2000.
• Far from fearing online video, our industry is courting and exploring partnerships to bring Internet video to the television screen;
• Our industry has worked – and continues to work – cooperatively with consumer electronics manufacturers to ensure TVs can receive Internet video by building in the necessary ports;
• Our industry is the largest provider of broadband in America, and we view the health and growth of the Internet ecosystem as fundamental to our success, which means the applications and services on the Internet must thrive too;
• Our industry is aggressively deploying next generation broadband across America in order to enable, not restrict, new applications.

This analysis, of course, refers to current business models. Even now, the cable industry is experimenting with methods of offering cable programming online to subscribers, and things may change even further in the future. In my next post, I’ll examine whether people are really cutting the cord in significant numbers. [ed. note: the follow-up is here.]

Kyle McSlarrow, President & CEO of NCTA, recently sat down for a chat with Nate Anderson of Ars Technica. Anderson has written about that conversation today in a post entitled
Cable: let us experiment with metered Internet.

First up, they discuss the issue of caps & metering, which was in the news last month.

McSlarrow doesn’t defend any model; he’s not even partial to metering, having happily lived under flat-rate plans himself for many years. He also won’t defend particular business plans, like those advanced by Time Warner Cable. But what he will defend is cable’s right to experiment.

“I’ve lived under a flat rate plan,” he said, “but I don’t assume… that’s it’s necessarily impossible to believe that you could have a different model in the future.”

That means experimentation, and lots of it, done in the most transparent well with full input from consumers. Without even doing the tests, McSlarrow says there’s simply no way to know whether certain business models will work better than others.

As usage increases over time, McSlarrow says that eventually something will have to be done to handle capacity issues.

“As demand goes in a certain direction,” he says, “someone’s going to have to build a network” to deal with “not just instantaneous peak but, more importantly, average peak usage. The whole point is to do it in a way, and to serve your customers in a way, that they have a great experience. If you fail on the network side to do that, particularly with our shared network, that’s a real problem.”

You can read the whole thing here.

Earlier this week, Cablevision announced Optimum Online Ultra, a new high-speed Internet product that uses the DOCSIS 3.0 standard to deliver speeds up to 101 Mbps. This is very exciting news, especially when you connect this announcement to the cable operators who have deployed wideband service over the past year – Comcast, Charter and Cox – and those that are planning to deploy in 2009.

And that might be all there is to say about it, but there was a little twist. Our friends over at Verizon seemed really unhappy about the launch. Was it the 101 Mbps that bothered them or the $99 monthly price? At any rate, take a look at this odd post on the Verizon Policy blog.

Besides arguing against the business model for their own FiOS deployment, you’ll note that one of their key complaints is that Cablevision’s 101 Mbps is a “parlor trick” because “there is little evidence of market demand for the speed.” This echoes a PCMag.com argument (referenced in this blog post) that higher speeds are unnecessary: “…no average consumer is going to pony up almost $100 for home broadband service—regardless of speed.”

Now, I’m a little confused here. I seem to remember all these arguments over the past couple years (sarcasm alert) about how horrible it was that consumers in Europe and Asia had so much more bandwidth, while we Americans had to struggle along with our anemic speeds. And now we’re told, “Bah, who really needs that much bandwidth?”

Secondly, Verizon pulls out the long-disproven accusation that cable broadband service is shared bandwidth and so it’s not real. Well, I hate to break it to the fine folks at Verizon, but all bandwidth is shared at some point, even at FiOS. Yes, cable broadband is engineered differently than FiOS is. Cable started deploying modem service about 15 years ago and the intention was always that customers would share bandwidth off a node, but that nodes could be split as needs increased.

Verizon issues a clarion call against “parlor tricks.” Here’s a neat trick for you: If you’re a FiOS customer, with its “all-fiber” service, take a look at the back of your TV or at your modem. You’ll find a piece of coaxial cable, making it a hybrid fiber-coax system. So, wasn’t “fiber optics right to the door, true QAM” a bit of marketing? Especially in light of the fact that cable has generally built its broadband customer base and high penetrations while offering its best services and fastest speeds to the homes passed by its network, while Verizon focuses attention on FiOS’ fast speeds but still offers copper-based DSL service across most of its footprint.

Add the fact that Verizon says that Cablevision “claims” they deployed the service across their footprint (when a Cablevision spokesman confirmed that the service will be available across their service area on May 11) and you get the idea.

But this is competition in action. When Verizon thought they had the edge, they bragged pretty loudly. Some blogs, such as GigaOM and CrunchGear, noted that Verizon seems to be protesting a little too much this time.