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.]

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.

It probably comes as no news to you that the availability and consumption of broadband video has risen dramatically this year. I enjoy using Net-viewing to timeshift or catch up on old episodes of particular shows, as well as watching video that’s exclusive to the Web (I love ill Doctrine, a hip-hop video blog hosted by Jay Smooth).

But there’s been a particular notion that risen as well that fascinates me: the proposition that online video can completely replace regular television. Twice, we’ve addressed the notion that online “a la carte” consumption of content can be a cost-savings measure (here & here).

In recent months, the “cord-cutting” meme has shifted a little bit. Instead of simply focusing on the benefits of online video’s a la carte nature, there have been a series of stories about people canceling cable or other subscriptions in favor of getting all their video from other sources.  There’s even a website dedicated to the idea of No More TV.

For example, here’s an L.A. Times piece on Kevin Rose – co-founder of such start-ups as Revision3, Pownce & Digg – explaining why he canceled his Comcast cable and TiVo subscriptions in favor of getting video from the Internet and his Netflix-Roku box. Note that he says he only watches “a handful of shows and about 10 to 12 hours of programming a week.” As we’ve noted before, Nielsen says the average is 127 hours, 15 minutes per month, or just shy of 32 weekly hours.

Mutichannel News has also examined this idea of dumping cable for the Internet. Note that the first customer interviewed says, “I don’t watch a lot of TV myself.” Here’s an important piece of this movement to cutting cable:

Online fare is skewed toward broadcast content. Full episodes of about 90% of broadcast networks’ primetime shows are available on the Internet, compared with about 20% of cable shows, according to Forrester Research.

So, while some cable programming is available online, much is not. Multichannel talks to another customers who says “the bigger adjustment for him was the lack of cable news programming.” TV Week‘s Daisy Whitney is in the midst of an experiment to see if she can get all her television shows online; this week, she wrote about the difficulty of finding kid-friendly content. Will Richmond discusses the lack of cable programming in more detail.

Now, I know that there are readers who will come to the conclusion that I make these remarks for anti-competitive reasons. Purportedly, cable operators are scared of the competition from online video, which also supposedly explains (NOT) many of our network management policies. But some cable operators are also in the online content business, such as Comcast’s Fancast service. And many of these articles and blog posts on getting video from online sources don’t mention that you still have to have a broadband connection to do so – a service also offered by cable.

I think the growth in video is a terrific thing, but I’m a little skeptical about how fast the “cord-cutter” trend is growing. If this was a real movement, wouldn’t we see multichannel subs going down as broadband video consumption went up?  Instead, the subscription numbers have stayed pretty stable.

This week, Contentinople‘s Eve Bergazyn also noted another trend:

According to The Nielsen Company ’s TV/Internet Convergence Panel, the heaviest users aren’t medium loyal: “the top fifth of Internet users spend more than 250 minutes per day watching television, compared to 220 minutes of television viewing by people who do not use the Internet at all,” the company announced in a press release. The opposite is true too, with lower Internet-usage correlating with less time spent in front of the television.

So, perhaps the roles of television and the Internet are more complementary than it might seem at first glance.

We can only repeat ourselves on a la carte so many times before our heads burst in frustration. I think we’re one or two posts away from that point, so this may be my last word on the subject.

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.