Regular readers will note that I keep returning back to the issue of cord-cutting, mostly because I keep reading articles and blog posts about how it’s the big new trend.

It’s not a question of whether more television content will move to the Internet or whether IP transport will be used more in the future for video distribution. It’s two questions:

a) Are a lot of people canceling their cable subscriptions for cord-cutting alternatives?

b) Can you replace your cable subscription through online video?

In a previous post I attempted to answer these questions, but it’s quite simple: a) No. b) No.

This debate does show that consumers have more choices than ever before, which one would hope can finally put to an end to the view that insufficient competition exists. I might argue that cable subscriptions provide the best combination of services and value, but those who don’t agree clearly have many other options.

This week also brought two new pieces of evidence which tend to support the subscription model, one scientific in nature and one anecdotal.

Parks Associates released the All Eyes on Video study, which looks at “consumer use of and interest in video experiences.” From this WorldScreen.com article, the report found that “Less than 8 percent of U.S. broadband homes — about 5.5 million homes — are considering canceling their pay-TV subscriptions in favor of online video…”  This Broadband TV News article reports the profile of these consumers.

The households likely to switch or cancel their services watch a whopping 10 hours of online video each week, much higher than typical video consumers. They express strong interest in having online access to pay-TV channels (e.g., TV Everywhere), which highlights an opportunity for traditional pay-TV providers to solidify their base through the deployment of such features. Offline video consumption is also higher. Their median number of DVD rentals from the last six months is 18, compared to two rentals among other households.

Janko Roettgers, in this NewTeeVee post, thinks that the real winners will be DVD rental services like Netflix and Redbox, although it’s worth noting that the DVD business is going through its own problems right now and Netflix does not yet have a deep catalog of content that can be watched online through its Watch Instantly feature.

The Business Insider’s Dan Frommer quite famously cut the cord on cable, as noted as recently as this December 2009 article on the proposed Comcast-NBC deal:

Nielsen recently reported that although online video viewing has risen 35 percent in the past year, 99 percent of TV viewing is still done on a traditional TV. But that’s not the case for younger people, like my pal Dan Frommer. He’s 27 years old and works as a writer for a technology Web site. Frommer pulled the plug on cable TV in May 2008 and instead gets shows from the Internet via a Macintosh computer hooked to his LCD television. He can’t get everything he’d like to see, but he’s saved $1,500 on cable-TV fees. “I’m not going to let myself get ripped off for a bunch of garbage that I don’t watch anyway,” he says.

And here was the title of a Frommer post yesterday: Why I Caved, Bought Cable TV, And Gave Up On My ‘Hulu Household’. Read it for yourself, but you’ll find many of the issues I’ve discussed here before; high-definition television, live sporting events and the costs of high-quality TV productions all play a role.

Final note: I draw your attention to this Mari Silbey tweet from Monday. Roku, frequently mentioned as one of those great alternatives to subscribing to cable, has recently talked about how subscriptions will play a greater role going forward. In fact, they’re “looking to line up at least 100 content partners this year.”

Mari tweeted, “I’m sorry, but does no one else see the irony of Roku’s plans to bundle free hardware with subscription content? It’s called a cable set-top.”

The more things change…

At the recent CES conference, there was much discussion of 3-D TV, mobile devices and tablet PCs. But there was also a great deal of talk about the future of television and about alternatives means of delivering entertainment and information to consumers.

On this blog, I have many times written about so-called “cord cutters” – people who have canceled their cable subscription in order receive movies and television shows over the Internet. CES was filled with talk of Netflix’s deal with Warner Bros, the Boxee box, the introduction of VUDU Apps, and more. Sessions with titles like Rethinking the Future of Creative Works and Defining Internet TV focused on emerging models for the distribution of content.

What struck me at CES – as I have also been reading in the blogosphere and the mainstream press for over a year – is that we’re moving away from the current model, where 85% of U.S. households get video through a Multichannel Video Distributor, to a new disintermediated world, where you’ll get content over the Internet directly from content creators. To hear some talk about it, the current model is a dinosaur and the sooner that the cable industry can figure that out and move on, the better.

But let’s note again that 85% of U.S. households get their television from cable, DBS (DirecTV & DISH) or from the phone companies (AT&T’s U-verse & Verizon’s FiOS). In December, NewTeeVee noted that Nielsen reports that “99 percent of video is watched on a TV in the U.S.”

Americans spent 129 hours and 16 minutes per month watching TV in the latest 3-month period, seven hours and 12 minutes watching time-shifted TV, and three hours and 24 minutes watching online video.

Things will undoubtedly change. But what might account for everyone not rushing to cancel their cable today?

One possible answer can be found by looking at the example of noted blogger Ben Drawbaugh. I don’t mean to pick on him, because he’s a nice guy, but when I last wrote about cord-cutting in December, he posted this comment:

For the most part I agree with the premise of your post, the notion that more than a small percentage of people will cut the cord and use legit streaming services is just crazy.

That being said, I do cancel my cable service in January and don’t feel the need to add it back until August. So yes, I pay $50 a month to Verizon to watch ESPN and the NFL Network — because college and pro football is worth $50 a month to me — but the rest of the crap on cable can wait. What I mean is that instead I subscribe to Netflix and wait another 5 months for Netflix to mail the first Burn Notice Disc to me. So in other words, Discs and OTA HD have everything I need for much less money.

Fair enough.

This week, though, Drawbuagh wrote a post entitled, “Canceling cable: the failed experiment.” He says that he needs to a subscription for work purposes, since he writes about cable technologies. Then, he says this:

The bottom line is that I love me some football in HD, so I can’t ever see myself going without cable year round, and with the hassle involved in canceling and signing back up, the $327 a year ($62 for 7 months minus $110 savings for signing a contract) I’d save just isn’t worth it… I suspect for many it just isn’t worth it either. Sure there is lots of content out there available via other legal means, but the bottom line is that when it comes down to it, cable really isn’t that bad of a deal considering all the HD viewing options you get for the price.

As I’ve said before, cord-cutting proponents love to suggest or outright claim that you can substitute online video for cable service, but there is much you can’t get online. One of those big categories is sports.

The Return of the Subscription Model

But all this discussion may be for naught, because some new developments suggest that online video may be moving to a subscription model anyway, which puts us right back where we are today. Hulu may soon be charging a subscription fee for some of its content, as may Boxee. Brian Barrett at Gizmodo added up the numbers for your access to even get online, plus the subscription for services like Netflix, and concluded that you might end up paying “hundreds of dollars a month,” perhaps “nearly $1,000 a month.” Nicholas Carr, in a colorfully-titled post, also looks at the numbers and asks, “Now somebody remind me how we all came to think that information wants to be free.”

And yet, on that previously mentioned Rethinking the Future of Creative Works panel, the speakers couldn’t think of what the role of service providers (such as cable operators) might be in our connected future. The panel didn’t really answer an audience question on how all the content will be paid for. They didn’t really answer a question on why service providers would invest in infrastructure.

On another panel, Mitch Berman of ZillionTV said that claims that production values for movies and TV won’t be there without subscription model are overblown. On an FCC panel, Commissioner Robert M. McDowell reminded us that quality content costs money and that right now, the ways to cover those costs are through advertising or subscriptions. Even the NY Times has now announced a new plan to require some sort of subscription.

So, we may be moving to a Bright New Future a little more slowly than some are claiming. And it may be that subscriptions serve a purpose after all.

Time will tell.

One of the big stories in tech reporting over the past year or so has been the move by some consumers to “cut the cord” from their subscription TV service and begin relying on the Internet for the delivery of video content.  I catch up on a lot of shows myself by watching them online and this is definitely a convenient service.

While cord-cutting is definitely a trend that the entire media industry is watching, many of the articles and blog posts covering this say something like: “Tired of paying so much for cable? Cancel your subscription and turn to the Internet to serve your needs!” The direct implication of this is that you can get all the stuff you currently watch on cable television – or via DBS (DirecTV & DISH) or from the phone companies (AT&T’s U-verse & Verizon’s FiOS) – just by going online.

But all this coverage ignores the fact that you can’t do this. You can get some cable programming online, but not most of it.

Let’s focus in on a couple key elements.

From an October 29 article in the Washington Post:

[Cord-cutting] was a somewhat easy thing for us to do. We don’t watch that much TV in the first place, and most of what we do view is on the [over-the-air broadcast] networks anyway…

If you look at this post I wrote in November of last year, you’ll note the same thing: A lot of cord-cutting proponents don’t watch much television and what they do watch is from broadcast television (generally easy to find online).

From the New York Times on December 9:

…Boxee easily allows access to the Netflix streaming service, which offers up thousands of movies and television shows (just not always the most popular options).

Anyone who’s actually used Netflix’s “Watch Instantly” feature, as I have, knows that you can see older movies and some TV shows but not any of the current cable shows generating water-cooler discussion. And you don’t get any access to new hit movies.

This HuffPo post, while also proclaiming the wonders of cord-cutting, charges that major cable operators “have been pressuring TV programming networks to keep their shows off the Internet,” implying that they should be provided for free.  Perhaps the writer may be unaware that cable programmers have a dual revenue stream: They get some money from advertisers (which is based on the number of homes they’re carried in) and some money from cable operators and other multichannel video providers (called carriage fees).

Online advertising revenue has not been as lucrative yet as television has been. And multichannel video providers would undoubtedly not want to pay as much for a product that is being given away for free online.

And is this really such a good deal for consumers? The Times notes:

If you watch premium-cable television shows, you can pay more than $40 for the season of a single show. But even that is less than one month of cable.

Wait.  $40 for a season of a single show?

I’m paying Comcast about 100 bucks a month for video service, but it’s a very robust package that includes hundreds of viewing options, including multiple premium services. SNL Kagan reports that the average price for digital cable (which 67% of cable subscribers now take) is about $60 a month. I probably watch about three hours daily, for about 90 hours a month. The latest “Three Screens” report from Nielsen reports that Americans are watching an average of 31 hours and 19 minutes of live television per week or 125+ hours a month.

So, one cable show via iTunes for $40; two shows are $80. I happen to watch a lot more than two cable shows.

All this gives me a cost-cutting idea!

Anybody who knows me knows I don’t care about sports. Not professional, collegiate or amateur athletics. Given that situation, I guess I should cancel my subscription to Sports Illustrated, huh?

Yeah, I’m kidding, because I don’t have such a subscription. But it illustrates a good rule for some people: If you’re not interested in watching cable programming, you probably shouldn’t subscribe to cable television.

Online video viewing is small, but growing. The statistics are dwarfed by the amount of television delivered via traditional methods, and the number of video subscribers continues to grow. In all likelihood, those figures will shift over time. But it’s not there yet.

It’s ironic, because lots of people like cable TV precisely because of the programming. Back in the early Seventies, when I was a kid, we had cable for clear reception. By the Eighties, we had it for all the great new channels: Nickelodeon, MTV, A&E, CNN. If this service is of no value to you, then it’s wise to not subscribe. But you’re not going to duplicate the experience through your computer – not yet, anyway.

UPDATE: For more on the economics of buying programming “à la carte,” such as from iTunes or Amazon, see here and here. Bottom line: Buying individuals programs is a great cost savings, provided you watch very little TV.

Sean Fallon has a post up at Gizmodo titled “Life Without Cable or Satellite Is Easier Than You Think.” Fallon’s central argument is that all the shows you watch are available freely online, and you just need to connect a PC to your TV to get all the same content. It’s a premise we have seen before in countless posts and newspaper articles. As in those articles that came before it, however, the premise is simply not true.

Broadcast Programs Aren’t Cable

To begin with, Fallon makes the same mistake others have made in confusing broadcast versus cable content. His list of favorite shows is rich with broadcast content.

I’m not a TV addict by a long shot, but there are shows that I watch religiously. These shows include 30 Rock, Lost, Family Guy, Californication and Dexter. The following graph illustrates the pluses and minuses of viewing a handful of different shows—not just my favorites—from popular networks.

The graph includes those mentioned plus The Daily Show, CSI, Deadliest Catch, and Entourage. Of the nine programs he specifically mentions, four (30 Rock, Lost, Family Guy, and CSI) are broadcast offerings available with nothing more than rabbit ears (for those with an HDTV or rabbit ears and a converter box for those without an HD tuner).

The other 5 are actually cable content. So, let’s focus this discussion on those to see how “easy” it would be to get them online.

The Daily Show makes most of its content available online for free. The program is relatively inexpensive to produce and Viacom has chosen to make it widely available via the Internet. Based on one network’s decision to make its content available for free, Fallon makes the laughable suggestion that all cable operators, regardless of the production costs of their shows, “move away from old revenue models and look towards the future.”

So what, exactly does Fallon’s future business model look like? To answer that, let’s look at one of Fallon’s examples.

Time Sensitivity and Value

Comedy Central’s Daily Show and The Colbert Report are often cited as examples of the new business model based on giving away content for free. For the most part, both of these shows are placed online almost immediately after their original air date. People arguing for “cord-cutting” often cite them in their arguments. Unfortunately, they’re actually very poor examples for one specific reason. They’re time-sensitive.

These two programs, being based on current events, lose value as the viewer is further and further removed from the context of the events. Yes, the shows may still be humorous if viewed weeks later, but what about months? What about years? In other words, their shelf life is limited.

Typical sitcoms, where the humor is situation-based, can be viewed much later and retain relevance. The clothes may appear dated, but the story still rings true. That’s why shows like Friends, Cheers, and Gilligan’s Island may be in syndication for a decade or more after their original air date. Shows like The Colbert Report and The Daily Show have almost no syndication value. Comedy Central can pick up more revenue through online ads in the days and weeks immediately following broadcast than they would be able to with DVD sales months later.

So we see in one of Fallon’s specific examples a clear reason for making the content available online. What about the rest?

Broadcast Versus Cable Business Models

Since we have begun the discussion of value, we should look at the ways that programs earn revenue. Broadcast programs typically earn the bulk of their revenue from advertising based on their original air date. Broadcasters sell ads and support the programs with that revenue. Shows are routinely canceled when they don’t draw enough viewers to earn a return based on advertising. This has become a particularly troublesome business model as ads are increasingly avoided through the use of DVRs and online viewing.

Cable programming is based on a different model. While cable show still feature advertising, cable programmers also earn a per-subscriber fee from the operators who carry their channel. This revenue model works better as it provides a stable source of revenue separate from the regular fluctuations of ad income. Under this model, the subscriber fees are based on exclusivity of content. If the same content were suddenly available for free elsewhere, the incentive to subscribe is gone and you’re suddenly back to a purely ad-supported model.

Fallon cleverly ignores the fact that most of the shows he cites are among the most protected of cable’s programs. Deadliest Catch, Dexter, Californication, and Entourage are exceptionally difficult to find elsewhere. As he mentions, only one episode of Californication and Dexter were made available via Netflix, and only for a short time. He is correct that you can buy entire seasons on DVD, or rent them, but that is typically months after their original air date. If you want to watch these shows when your friends are watching and talking about them, a six month or greater delay is simply not an option.

So How “Easy” Is It To Drop Cable And Get It All Online?

Fallon’s central thesis and the title of his post come down to it being “easier than you think” to have life without cable. Yet his post demonstrates quite the opposite. He freely acknowledges that 4 of the 5 cable shows he watches are not at all easy to find without a cable provider; the one program that is easy to find is available primarily because it carries an expiration date; and the remaining 4 programs aren’t cable programs at all.

We have stated on a number of occasions a simple truth: If you are watching cable to get broadcast programming, you may be paying for a service you don’t need.

If, however, you are subscribing to cable because you enjoy the tremendous variety of cable programming – everything from Entourage and Jon & Kate Plus Eight to Real Housewives of Orange County and ESPN sports, then you simply won’t find the programs, or the quality of programs available anywhere else.

There are adults today who have never known a world without cell phones, color television or ATMs. These are people who have had cable television all of their lives (not to mention Internet access, DVRs, DVDs, and so on for a shorter period of time). This actually presents significant challenges to the cable industry.

To people who have always had cable, there is no difference between an over-the-air (OTA) broadcast channel and cable offerings. However, in both the business and regulatory environments, the difference between OTA television and cable matters. The business models are different, the ad revenue streams are different, the content regulation is different. Whether you run a local TV station or a cable system, a broadcast network or a cable net, you live with these differences everyday.

To viewers, those differences are invisible. They cruise around the channel lineup, probably not paying any attention when they’re tuned to a cable channel and when they’re looking at a broadcast station. They may be vaguely aware the rules for swearing vary between basic cable and networks like NBC, CBS, ABC, Fox, or the CW – although, as broadcast standards have changed over the years, the differences aren’t as stark as they used to be. Even if they see that distinction, they may not know this is because broadcasters use the public airwaves, while cable programmers do not.

Another example: If a cable programmer – Animal Planet, Comedy Central, Turner Classic Movies – wants to be carried by a cable operator, then that network has to make its pitch. It has to demonstrate the value it will deliver and then an agreement is negotiated. An OTA broadcaster can choose between Must Carry or Retransmission Consent status in order to gain carriage. As NCTA President & CEO Kyle McSlarrow pointed out in testimony earlier this year, “it’s not a free market negotiation.” For example, if negotiations between a cable operator and a broadcaster go badly, that operator can’t turn to an out-of-market broadcaster that carried the same programming.

You can argue that the average viewer doesn’t need to know the difference. They watch what they want to watch and they don’t care whether the programming is cable or broadcast. But you cannot ignore the impact of these differences. They can be seen all the time.

I’ve mentioned the issue of must carry/retrans, which I blogged about earlier when clashes between Time Warner Cable and broadcaster LIN TV were in the news. I’ve written multiple times about the distinction between the broadcasters’ Digital TV Transition and the cable industry’s migration to digital; just recently, my colleague Michael Turk responded to a Consumers Union letter that seemed to combine the two. I’ve written about the so-called “cord-cutters,” who aim to get all their TV via the Internet; I mentioned how little cable programming is available online as compared to broadcast television – an issue which is a direct result of their differing business models. (Will Richmond writes about this issue in more detail today.)

When discussing television, and the impact of various policy proposals, it is useful to be aware that the telecommunications and television industries are still rooted in historical traditions, no matter how much it seems like all the old rules are gone. While public policy may eventually catch up with the rapid changes of the last decade, we’re not quite there yet. We must remain cognizant of that in applying a one-size-fits-all model to services that vary greatly – whether you can see the differences or not.