Alyssa Rosenberg, the new culture critic at ThinkProgress, wrote a piece earlier this week questioning the value of a cable subscription and calling for some kind of “à la carte” model. As a regular reader, this naturally caught my eye, since I have also blogged here in the past about the a la carte issue.

Her post seemed to have attracted some attention (Andrew Sullivan linked to it), prompting a response today from Megan McArdle, the business and economics editor for The Atlantic: Why Can’t We Unbundle Cable?

One highlight (although you should read the whole thing):

As James Surowiecki pointed out last year, most people actually like bundling — they don’t want to buy books by the chapter or newspapers by the article . . . or SyFy by the show.  What they dislike is paying so much for cable.  But they are mistaken in the belief that unbundling will bring their bills down; one recent estimate was that unbundling would lower prices by $0.35 a month.  Other studies indicate that the average consumer would pay more, to cover the transaction costs of an unbundled system.

Bundling is what happens in markets with a high fixed cost and a low marginal cost.  It costs a great deal to run cable to your house, and make or buy television shows to send down that pipe; it costs basically nothing for each show you actually watch.  In this environment, attempting to give people only the networks that they want simply adds costs and hassle for the company, which has to customize everyone’s feed and then deal with the inevitable errors.

Rosenberg then revisited the issue, nicely summarizing the problems with an a la carte approach, even if she seems to remain unconvinced.

The technological means of distributing programming are changing rapidly, not only through the popularity of services like Netflix, but also through the distribution to connected devices (as we recently wrote on this blog). Each of the new services is providing consumers many more ways to enjoy content, either as part of a bundle or on a pay-per-watch (a la carte) basis.

But the economics of program creation and distribution are pretty much unchanged so far. That’s why cable companies’ bundles of voice, video and data continue to provide a lot of value to their customers.

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.

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.

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.

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.

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.

And I don’t even really need to respond, because Adam Thierer has given it the one-two punch at Tech Liberation Front.

• Cutting the (Video) Cord, Part 2
• We Don’t Need to Mandate “a la Carte”… It Already Exists

But if you want my take on the cost-savings of broadband video, refer to these earlier posts:

• The Roles of TV and the Internet
• Does A La Carte Always Make Sense?
• More Media Inaccuracies About A La Carte

On a related note, TV Week‘s Daisy Whitney writes about using the Boxee service to watch Internet video on her television, as part of a cable-free experiment she’s conducting.

The Golden Swamp blog comments on Musgrove’s column by noting that more people watched Tina Fey’s portrayal of Sarah Palin online than on television, and suggests than one could then unbundle one chunk of content (such as a Palin skit) from an entire television episode (a 90-minute SNL). Judy Breck is using this approach to propose unbundling educational resources; others have applauded the ability of iTunes to allow you to buy just the songs you want instead of the whole album (David Lazarus called it the “iPod factor.”).

But as I have written on this blog in regards to “a la carte,” the economics may not pay off. If you unbundle one cable network from others, the economics change. Unbundle one show from a network, they change again. Unbundle a segment from the show, again.  That’s not to say that cable networks don’t or shouldn’t repurpose content. Comedy Central puts entire episodes of The Daily Show online for free. Some cable networks make content available to mobile subscribers or put clips on their websites. I’m simply offering a reminder that there are different approaches and different business models; not everything you want may be available on the platform you want and in the manner you want.

But things change and nothing is permenant. Stay tuned.

I get it. It feels like much of the content world is going to a pay-only-for-what-you-want model. Certainly, it feels right emotionally to only pay for the stuff you’re going to use. But this argument is almost always predicated on one premise: If I could pick and choose, my bill would go down.

Lazarus writes:

The average U.S. home now receives a record 118.6 TV channels, according to a recent report from Nielsen Co. But the dirty little secret of the cable industry is that the average subscriber watches only about 17 channels regularly.

That’s more than 100 channels that most cable subscribers are paying for but seldom if ever watching.

Because of the number of cable systems nationwide, it’s hard to get a fix on the average monthly bill. But many estimates place this figure at $60 to $70.

This means, if all channels cost the same, the typical cable subscriber is spending about $9 a month for the 17 channels he wants to watch and about $55 for the 101 channels he never sees.

There are big problems with the figures here, so let’s break it down.

If you’re getting 118.6 channels, that means you’re getting digital cable service, because analog can’t deliver that many. SNL Kagan estimates that the current average monthly price for digital service is $59.23 (expanded basic is $44.28), which not only provides a wide range of programming but also opens up the door to high-definition and Video on Demand.

The first important point that Lazarus overlooks is that the average cable subscriber has elected to switch from a cheaper level of service with fewer channels, in order to take a more expensive level of service with more options. Perhaps people like the greater choice that comes with digital?

For example, Cablevision recently reported that more than 90% of its video customers subscribe to digital service, which means that 9 out of 10 of its customers want more channels, not fewer. If you look at the largest cable operator, Comcast, you find that 69% of its video customers elect to subscribe to digital service. Industry-wide, approximately 62% of cable’s video customers have made the decision to receive more channels via digital service.

Lazarus continues:

But all channels don’t cost the same amount. By most accounts, the sports channel ESPN is one of the most expensive carried by cable systems, costing by some estimates more than $3 a month per subscriber. Many other channels are said to cost as little as 25 cents monthly.

I never watch ESPN. When I watch TV, it’s usually CNN, CNBC or a movie channel. On an a la carte basis, I could probably get the handful of channels I like for pocket change.

That, of course, is not what the cable industry wants.

Lazarus leaves out all of the relevant content here. Those figures he cites are carriage fees that cable operators pay programmers in order to carry those services and offer them to their customers (The real rates are found in private contracts; actual figures will vary by company and circumstances). It’s not what those networks “cost” and it’s not a reflection of what you would be charged in an a la carte world.

He also writes:

According to the FCC, average cable rates nationwide more than doubled over the last 10 years.

In fact, the FCC has not released any reports containing this information. There have been statements in the media to this effect, but the Commission has not released any reports to back up this assertion. It is irrelevant to compare today’s rates to the rates from more than ten years ago, since the nature and value of that service has changed over that same time-frame, but it is worth noting that over the last several years, the increases in cable rates have actually lagged behind inflation rates.

Read this post for the financial details, but the short version is that if each network lost the carriage they have now and then had to market and sell the channel to individual consumers, revenue goes down, operating costs go up and programming quality probably also goes down.  And the price you think you’ll pay for individual channels on an a la carte basis? You’re probably grossly underestimating it. The reason why you should pay for more than you watch is that it beats paying more to have fewer options.

Lazarus writes that cable needs to be brought “in line with the wholesale shift in how consumers now approach entertainment.” But different distribution outlets have different pricing models. If you saw Iron Man in the theaters, you probably paid ten bucks. The DVD is probably $20. Buy it on iTunes for $15 or watch it on VOD for $5. As I’ve written previously, different businesses operate on different models and it’s a mistake to assume they should all be the same.

Lazarus makes a comment early on about knowing “as a newspaperman” a little something about “outdated business model[s].” The print edition of his newspaper, the Los Angeles Times, is not sold on an a la carte basis, with the option of buying just the sports section or the business section. They did experiment a few years ago with putting their online entertainment section behind a wall and then charging a subscription fee for access. They later ended the experiment. The New York Times did something similar with its TimesSelect service. In these instances, the free market determined their actions, not regulation. Business models change over time and the models of the cable industry will undoubtedly do so as well.

If you look at the comments of this column, you’ll find some other reasons given why mandatory a la carte would probably be problematic. You could also check out some of Mike Masnick’s posts at Techdirt, such as here, here or here.

But first, let me explain the reason for my frustration. Rob Pegoraro, the gadget guy at the Washington Post, has an article up about beating the high costs of high tech in a slow economy.  In it he extols what he believes to be the virtues of a) Internet video and b) a la carte TV.

You can also turn your broadband connection into your TV service. The networks offer free streaming video of most shows at their own sites and such third-party portals as Hulu, and you can buy shows at Amazon’s upgraded video-on-demand service and Apple’s iTunes Store.

You may find that these options permit you to chop down your TV service to a cheaper bundle — or, if your tastes line up, drop it entirely in favor of free, over-the-air digital broadcasts. The Web can become the a la carte programming bundle that TV service providers refuse to sell you, greatly reducing your monthly costs. And in the process, you can help teach the cable and satellite folks that we’d like that choice.

Pegoraro deserves credit for trying to help consumers manage their pocketbook in tough economic times, but a la carte is one idea that makes a good bumper sticker slogan (after all, who isn’t for more choice?) but actually would end up costing most consumers more.

First, Pegoraro suggests that you get your broadcast programming online via video portals.  This is impractical on a number of fronts not the least of which is the fact that broadcast television is free over the air.  Suggesting that you pay for broadband service to watch free TV is sort of odd – especially in an article about cutting costs.

Second, he suggests you may greatly “reduce your monthly costs”.  But is that true? For most consumers, probably not.  Let’s assume you are what Nielsen describes as a “TV user”.  On average, TV users watch a bit more than 127 hours of TV per month.  Most television programs sold through iTunes or Amazon’s Unbox run $1.99 per program whether it’s a 30 minute or a one hour program.  If your tastes run to sit-coms or home improvement shows, you’ll be paying about $4 an hour.  If you’re the TV user consuming 127 hours a month, your bill just jumped to more than $500.

If your thing is one-hour dramas, you can cut that down to about $250.

Your monthly expanded basic cable package runs you about $60.

Think of it this way:  If you’re a single person living alone, and you don’t watch all that much TV, web content in a consumption-based billing model may work for you and save a few dollars.  If you’re married, and have to worry about what two people watch, your costs start to rise dramatically.  He’s watching episodes of Eureka and Battlestar Galactica.  She’s watching Miami Ink and The Daily Show.  They both watch Deadliest Catch and South Park.  Those are just the cable favorites.  Throw in Chuck, Dirty Sexy Money, CSI and Law and Order (all 94 different versions) and you’re talking a lot of scratch for even a handful of individual programs.  Now add in a couple of kids, and you’re off to the races.

Also, Pegoraro’s piece assumes that programs would cost the same in an a la carte world as they do now.  This ignores basic market forces.  The reason your program costs $1.99 the day (or the season) after its original air date is because the network made most of the production costs back on advertising during the original airing.

If people were to totally disconnect their TVs, and only consume on demand through iTunes and Unbox, programmers would still need to make up the money they lost with no advertising during the original run.  That $2 program today may become a $5 (or more) program tomorrow.  When you’re suddenly paying $100 or more for a season of your favorite show, it might lose its luster.

The fact is a la carte has been weighed, measured, and come up wanting.  Study after study has determined that for most people costs go up, not down, in an a la carte model.  If you watch very little TV, you might see some reduction.  But based on Nielsen’s numbers, people are watching more, not less, TV.

For example, in early June the I Will Teach You To Be Rich blog argued in favor of cutting down on unneeded subscriptions: “Instead of paying for a ton of channels you never watch on cable, buy only the episodes you watch for $1.99 each off iTunes.” (Also see the discussion of this tactic on Lifehacker.) You also often see people talking about how little cable television they watch.

• The Short Bus: “After all, I only watch about 5 or 6 channels – none of them are a major network.”
• jetdawgg at Leatherneck.com forum: “Frankly, the only Time-Warner channel I REALLY want is Turner Classic Movies. Maybe a couple others.”

I’ve also seen people argue that they only watch a couple of cable series. And if you’re a low-level consumer of such content, perhaps this makes sense. More and more television programming is available online, either as free streaming video or available for purchase on an a la carte basis via services such as iTunes or Unbox. Some have asked if Apple TV could be a replacement. As the supply of broadband video grows, the theory goes, consumers can turn to an online supply of a la carte video to satisfy their needs, saving money at the same time.

So, let’s run some numbers. According to estimates from SNL Kagan, the Average Monthly Price for Expanded Basic Programming Packages (2007 estimate) was $42.76. You can buy some television programs on iTunes for $1.99. Once you’ve purchased 21 or so shows at two bucks a pop, you’ve now matched the price of expanded basic cable service. At that rate, you could watch one show each weekday night, but you’ll have to take the weekends off. But if you want to watch more than that, then subscribing to cable makes more sense.

Another measurement is to take the average basic cable rates from SNL Kagan and divide it by average basic cable network viewing time from the Cabletelevision Advertising Bureau to obtain the Average Price Per Viewing Hour, which was 24.5 cents in 2006 (see an explanation of PPVH here). Since a typical hour drama can be purchased on iTunes for $1.99 – which makes their Price Per Viewing Hour about 8 times more. Keep in mind that a half-hour show also costs $1.99, making the PPVH for fare like Family Guy and South Park even higher.

Naturally, there are a couple of built-in assumptions to the a la carte argument: how little TV you will watch and how much cable programming you can get online. A recent Nielsen report on TV, Internet and Mobile usage found that the average American is watching 127 hours, 15 minutes per month. To watch that amount of video at $1.99 per hour would cost more than $250 per month. And if half of those shows were half-hour sitcoms (also at $1.99) the monthly bill would come in at $380. The people above who are quoted as watching so little television fall well below the average.

What’s interesting about the discussion of this topic is that there’s an assumption of how much video is watched online by consumers. Sure, there are certain groups who watch a ton of video online and watch little, if any, cable TV. But that Nielsen study found that Americans are not only using the Internet more, but are watching even more television. You might think this doesn’t apply to young people, but the Nielsen study says that 18-24 year olds are watching over 103 hours a month, and a recent study from Alloy Media + Marketing found that 38% of college students aren’t watching online video at all.

This is not to say that there’s not growth in broadband video. For example, 37 million episodes were watched on ABC.com’s video player during the month of May, or a total of 815 million minutes of full-length content.. There’s a good deal of broadcast programming online. But your local news isn’t available online. And while some cable programming is available, much of it is not. Will Richmond explored this issue and explained the importance of cable programmer’s dual revenue model.

Finally, the study of economics demonstrates that people’s mental states can affect their perception of this equation. You may think a subscription makes more sense because you pay once and get a lot. If you consume less than you think, a subscription approach might not be right for you. But when it comes to consuming television, consider your cell phone.

Remember a few years ago when cell phones were new? You got one and selected a simple plan, because you were only going to use the phone for emergencies. And then you got in the habit of using the device, because it’s so convenient, and then your bill went through the roof. Today, it’s smart to get a plan with a lot of hours or unlimited texting or some other pricing system that’s economical. Similarly, if you truly only watch a very small amount of cable TV, and if your favorite program is available in some other form, then it might make sense to purchase your video programming by episode. But if you watch an average amount of television, which is more than 4 hours a day according to Nielsen, then one of cable’s various packages (basic, expanded basic, digital, etc.) definitely makes more sense.

UPDATE:  I just noticed that this January post during CES touches on many of these same issues.