We return to the topic of “cord-cutting,” thanks to a few recent developments.

Before we start, it’s worth noting that much of the cord-cutting coverage I see online seems to begin with frustration at prices (somehow never compared to the costs of other entertainment options) or by desired flexibility in purchasing options (they just want to get the one network or the one show).

Then, the subsequent reporting or blogging is driven by a fierce conviction that the Internet and the Digital Age is changing the “cable model” – as everything must be changed under the new regime (“Resistance is futile!”) – and that it’s only a matter of time before the whole existing infrastructure comes tumbling down, to be replaced by a Bright New Tomorrow.

I must point out that the Internet offers a technical solution to delivery of content. It does not address the business models involving the production of content.

Everybody’s Dropping Cable and Its Days Are Numbered

“It’s only a matter of time,” critics will say. Pretty soon, a Hulu subscription will “kill your cable.” Or perhaps Google has the answer to “kill your cable bill.” In fact, it’s already happening now! The cord-cutters are taking over!

Just as a brief sample of cord-cutting claims, here’s Fierce IPTV from April and the L.A. Times from eight months ago.

About a month ago, I fact-checked two major cord-cutting reports from earlier in the year. Now, a new Nielsen report confirms that “cord cutting to date has been limited to very specific demographic segments.” See this finding from the report, as quoted by Connected Planet:

The survey’s key metric: 3.9% of the U.S. population had broadband Internet but no cable TV service in January 2010. That’s the same percentage reported for the same month a year earlier. In January 2008, it sat at 3.2%.

At the same time, the percentage of people with both cable TV service and broadband was 66.3% in January of this year, compared to 61.6% in January 2009 and 54.8% in January 2008.

But maybe there’s another threat to cable.

Drop Cable and Still Get Sports

About a week ago, ESPN and Microsoft accounted a deal that would bring the ESPN3 online service to Xbox 360 customers. There was much rejoicing in certain quarters, with MG Siegler writing at TechCrunch, “Xbox 360 Gets Live Sports In HD From ESPN. Canceling My Cable In 5, 4, 3…” Two days later, Karl Bode noted at DSLReports, “ESPN/Xbox 360 Deal Less Sexy Upon Closer Inspection.” He noticed that ESPN’s streaming video service has a model similar to its multichannel video business. ISPs are affiliates, much as cable operators are. And ESPN3 doesn’t offer all the same content that the television version does. (Also, see this post from the Sonic.net CEO Blog, arguing that “the Internet is ‘à la carte’, and it should remain that way.”)

So, I Should Still Cancel Cable, Right?

People like to complain. They threaten to cancel their service. But if you like to watch the programming, how else are you going to watch it?

CNET’s Rick Broida writes The Cheapskate column about saving money. He posed the question this week, “Is it time to pull the plug on cable TV?” He notes that you can use streaming services or a media center PC.

However, these options will get me only so far. If I want to watch shows like “Breaking Bad” or “Mad Men,” I’m sunk: they don’t air anywhere except on AMC. My only option would be to wait for them to come out on DVD. And even then, they won’t be high-def.

I also have kids who would probably require hospitalization without daily doses of “iCarly” and “Phineas and Ferb.” Granted, both are available through Netflix, but not the latest episodes.

And then there’s sports. I don’t watch a ton, but I do like my college basketball. The question is, do I like it enough to justify $70/month (especially when the season lasts only six months or so)? Dunno.

If You Want a Revolution, What’s the Solution?

As I’ve said before (see this post), people like to claim you can replace cable with something else, but the “something else” is often just broadcast programming streamed online.

Broadcast television has been around since the 1940’s and has a business model based on broad distribution; the free online viewing of those shows is just ancillary revenue. Cable has always offered niche content and has a dual revenue stream of advertising and affiliate fees.

Cable and other multichannel video providers are now responding to consumers’ interest in accessing cable content in new ways; that’s why we’ve seen the launch of “TV Everywhere” kinds of services, which allow subscribers to watch online the content they’re already paying for.

All those prognosticators who claimed that the cable model is doomed should try to answer the fundamental questions of how the television business is supposed to transition into this Bright New Tomorrow, while still maintaining the ability to recover production costs and generate revenue.

With lots of activity happening in the media and entertainment sectors in 2010, we’ve recently seen several stories about the carriage of programming services by cable and other video providers. This coverage has been partly driven by negotiations between programmers and operators about carriage fees, partly by retransmission consent disputes, partly by the growing prevalence of online video.

Many of the news stories and blog coverage have attacked the business model of multichannel video providers (which includes cable, DirecTV & DISH, AT&T’s U-verse & Verizon’s FiOS). Such arguments invariably lead reporters and bloggers to one of two conclusions: We need à la carte or all video should be available online to all consumers.

Over at AllThingsD, Peter Kafka revealed a rate card from an unknown cable operator that reveals what said operator pays each programmer for the right to carry their signals. Kafka thinks that the hidden cost of programming is the problem.

As I’ve said before, I think that many cable viewers are probably okay with most of the bundle–or at least unwilling to foot the bill for real a la carte pricing. But maybe if you waved this list in front of them, they might rethink that.

Of course, there are a few problems with this. First, there’s no way of knowing what these prices really mean. Could this be the same rate that all companies pay? After all, Wal-Mart doesn’t pay the same price for product as another retailer might. In addition, the “wholesale” price that a video distributor pays (or any business for that matter) isn’t the same price that a consumer pays, especially if you purchased channels on an individual basis versus the savings of a bundle.

At the Atlantic, Derek Thompson points out more problems:

Monthly cable bills are about $50, [Kafka] says. An American’s average monthly TV time is 150 hours (via Nielsen). So today we pay about 30 cents per hour of TV, right? Not exactly. Monthly cable bills are by household. Monthly TV hours are by individual. I live with two roommates. I pay $17 for cable and consume 150 hours of television. My TV experience costs more like 11 cents per hour.

Thompson also points out how a la carte would affect advertising and notes that this analysis doesn’t reflect how people watch TV in the real world.

…a great deal of TV time is spent “surfing” for nothing in particular, or watching shows to which we ascribe no real monetary value but we watch anyway because we’ve already paid the monthly access bill.

Eduardo Porter, in the New York Times, also argues that Americans might be more likely to pay for content if they knew what they were paying for, even suggesting that a coin slot attached to the TV or PayPal account would enable purchase of individual shows, regardless of which network they are on.  But all Porter has to do is look at the cost of pay-per-view to realize this is a much more expensive way to watch your favorite shows.

We’ve covered the topic of a la carte several times before, but the point is that cable networks will lose the broad carriage they have now and be forced to spend considerable money to market and sell the channel to individual consumers. Revenue goes down, operating costs go up. Programming will be impacted.

There’s usually a conclusion to all these “analyses,” even if they don’t say it flat-out: “If you would only move to à la carte or some kind of metered plan – then consumers would pay less.”

Except, perhaps, they wouldn’t.

I hope you are following the very vibrant debate that’s been taking place over the last week, involving  Boxee CEO Avner Ronen, Chairman of HDNet Mark Cuban and a host of other people about the relationship between free online video and the programming available from multichannel video distributers, such as cable, satellite and phone companies.

It all started with this Contentinople article, quoting Ronen: “Cable companies have been fighting cable à la carte for years in Washington, but I think consumers will prevail online.”  Then Cuban responded on his blog: Why Do Internet People Think Content People Are Stupid ? He argued that it doesn’t make sense to disrupt cable’s current business model.  He then followed up by noting the impact if the “a la carte” model was applied to Internet content.

Then the whole discussion took off. Here are just a few of the relevant links:

• Cable TV is Screwd [Post from Revision3 CEO Jim Louderback, formerly of the cable network TechTV]
• a lively debate with mark cuban [Avner Ronen responds on Boxee's blog]
• Some Questions & Thoughts re Internet Video vs the Incumbents [Cuban follows up with another post]
• Mark Cuban debates Boxee founder [Blog post from Michael Willner]
• Mark Cuban Declares War On Free TV Online… But Misses Out On The Economics [Mike Masnick at TechDirt argues that charging for online content is "a dead-end model"]
• The Cuban Files: Taking On Boxee & Business Models [To close the circle, Contentinople's  R. Scott Raynovich weighs in]

One notices some common themes of those arguing that cable programming ought to be available online either free or in an a la carte fashion.  There’s a general theme that all content must inevitable be available on the Internet in this fashion. Typically, what consumers want is held up as the Golden Rule. I’m no expert, but I don’t think that Masnick’s economic analysis makes too much sense.

Anyway, take a look for yourself.

Stories about “cord cutting” seem to be all the rage right now, but many of them are overlooking some pretty basic – and readily available facts – which suggest that consumers may enjoy online video but they certainly aren’t ditching their set-top boxes by the truckload (just the opposite).

But, before getting into some of the basic facts which show that cord cutting really isn’t happening – at least not how it is being described in many stories – it would be foolish not to acknowledge that more broadband users (including me) are looking at more and more video online, and that is one trend that will continue.  As a cycling enthusiast, I’m even considering a subscription to www.cycling.tv.  But will my desire to watch a few cycling races or other videos online replace the diverse cable package that my family enjoys?  Not a chance.

And that’s because most of the content online doesn’t match my viewing preferences (and the vast majority isn’t age appropriate for my kids) and the experience is marginal at best when compared to the HDTV in my family room.  And even though I work in the cable industry, I don’t think my personal experience is different than many others.

Our blog has touched on the cord cutting topic before (see here, here, and here) but recent data and the ongoing media coverage make it worth revisiting.

First, keep in mind that cable is the nation’s largest broadband provider so the more consumers that need a higher speed Internet connection to watch video online, cable is probably your best option.

But when examining if cord cutting is truly happening, I would recommend reading a recent Daisy Whitney column in TV Week with a headline that says it all, “Where Are Cord-Cutters? Signing Up for Cable, Satellite.”  The takeaway – in the 4^th Quarter of 2008, video subscribers increased by 441,000. And for all of 2008, Sanford Bernstein analyst Craig Moffett reports that video subscribers rose by 1.3 million subscriptions, and he says, “cord cutting remains the province of urban myth.”

When it comes to TV viewing, Nielsen’s Three Screen Report also demonstrates that consumers are watching more video than ever, now up to 151 hours per month on TV alone.  Viewing of online and mobile video is also growing, but it’s only up to 3 hours per month online and 4 hours per month on mobile phones and other devices:

Viewers appear to be choosing the ‘best screen available’ for their video consumption, weighing a variety of factors, including the quality of the screen experience, convenience, availability of the video, and the ability to watch according to the consumers’ schedule. In the majority of cases, consumers choose to view video through the traditional means – live viewing of television in the home.

So, the data looks pretty clear yet we keep seeing headlines about Internet TV becoming the new mass medium.  I guess the point here is to use caution (and facts) before coining the next trend.

Stories come and go in both the general media landscape and the blogosphere, but often the same issues remain on the radar, but driven by different players and events.

For example, recently we’ve seen coverage of the Hulu-Boxee affair, the possible launch of online video platforms by cable operators such as Comcast & Time Warner and the “trend” of cord-cutting (getting all your video online). In addition, we regularly see many bloggers complain that the cable industry won’t launch “a la carte” options, so that subscribers can buy channels one at a time.

All of the coverage can be summed up thusly: “I think cable programming costs too much.” It also seems to me that this is a reflection of the dominant attitude found online: All content should be free or priced very low. But what people really mean, whether they realize it or not, is that they don’t like cable’s current business model. Every suggested solution – let customers buy one channel at a time, cable programmers should give their shows away for free on the Internet – would disrupt the current business model.

What Lessons Can Be Learned from the Newspaper Business?

Many industries have had their business models disrupted in recent years; one example is the newspaper industry. The Chicago Journalism Town Hall recently took place and some observers came away with the notion that the way for print journalism to survive is to adopt the cable business model.

This is an ironic reversal, because it appears that cable’s model was built on that of newspapers and magazines, which generally depend on a dual revenue stream of subscription fees and advertising. Print media are currently grappling with the best way to deal with the Internet and whether it pays to give away your content for free online.

Daniel Sinker on Huffington Post pointed out that an iTunes “a la carte” model might prove to be very bad for news organizations. (In fairness, he also suggests that saving journalism might mean tearing down the established order.)

The Chicago Tribune’s Eric Zorn expressed his own concerns:

… until a few months ago… I believed that large news organizations could thrive online by using the TV/radio broadcast model—by making it difficult to enjoy content without being confronted with advertising messages.

But for a variety of reasons, this model doesn’t seem to work for online news, particularly in this economy. Newspapers can and do make money with Web advertising, just not enough to make up for the declines in print advertising.

I’m now a believer in the cable TV model. News organizations that generate significant original content should band together for their own survival and sell group subscription packages for unlimited access to their stories, photos, videos, archives and other offerings.

Mark Cuban summed it up in the title of his blog post: How Cable & Satellite Can Save the Newspaper Business. Cuban argues that selling content “a la carte” is a difficult business venture and suggests that newspapers partner with cable and satellite providers to offer exclusive access to content.

Now, I don’t know if these solutions are the correct ones to save print media. And it’s highly likely that the cable model will change at some point. The correct answer doesn’t seem to be clear to anyone. Some print outlets give away their content for free. Some put parts of their content online, but require you to buy the print version to get the bulk of it. Some have suggested that non-profit journalism is the correct path. Some companies are experimenting with various models.

This is true of other businesses, since cable programmers are in the same position of experimenting with a variety of approaches.  Right now, they primarily rely on a mix of subscription fees from cable operators and advertising revenue. As I’ve noted previously, in an “a la carte” world, both of these revenue streams would be dramatically affected. It’s highly probable that this business model will change over time, but right now, mandatory “a la carte” would probably have a very bad effect on your viewing choices.

Cable’s Sinister Plot?

Just recently, Time Warner’s CEO Jeff Bewkes discussed a plan called “TV Everywhere,” that would put all cable programming on the Web, but only accessible to consumers who are already subscribed to a multichannel video service, whether from cable, DBS or a telco company.

And what were the headlines? “Time Warner CEO Plans ‘TV Everywhere’ — But Not For Everyone.” “Time Warner’s Bewkes Plots To Eradicate Free Content.” “Cable Tries To Stuff The Internet Video Genie Back In The Bottle.”

Yes, the cable cabal’s dark & sinister plan to not give its content away for free…

What I’m really trying to do is express my frustration at seeing coverage like this.  The headlines could have been just as easily written in reverse.  “Cable Expands Online Content for Subscribers” Or, “Cable Subs to See Expansion of Content Online Content.”  And then there’s, “The Bundle gets Bigger; Cable Adds Content Online.”

I hope I’ve made my point that the business of online content is a little more complex than it might first appear to be.  And new online content, available on demand for those who are already paying the freight, could be just the jumpstart that the online world needs.