The Trials and Tribulations of Cutting the PayTV Cord Part 2: We Finally Did It!

Back in March an article on this weblog reviewed the challenges in cutting the payTV cord: the difficulty in receiving the FTA (Free To Air) service, in the end we gave up as we couldn’t get it working at a reasonable cost; and through the process discovered we were trapped in a 2 year contract for triple play until August, an early termination fine of $345 would be applied if it was cancelled before the 2 year contract has ended (no prorating on the fine unlike in mobile). August is here and we finally cut the payTV cord.  Our viewing has migrated to principally OTT (Over The Top) in the past 6 months, it wasn’t a conscious decision, rather we made available all viewing options and let nature decide before we made the final leap to cut the cord; ensuring all the family was on board.

With the Olympics underway this is a great time to review if OTT alone is enough.  The BBC website is providing all the coverage we need on the Olympics.  Overall the experiment is interesting. An important facet of our TV viewing that enables us to consider cutting the payTV cord is we do not watch sports nor reality TV.  Since we got a DVR (Digital Video Recorder) several years ago our viewing of live TV has dropped to near zero.  We read the news on the web and have apps for the weather.  We tracked our viewing over a 12 month period to understand the content we like and when and where we watched it.  For example, Dexter is a show we enjoy, but we didn’t get around to watching the episodes until 3 months after the show ended; we’re not appointment TV viewers.  These characteristics put us in a minority of TV viewers.

Our son is the TV Everywhere (not just multi-screen) viewer, he uses the Kindle Fire (with Amazon Prime Instant Video, Netflix, and YouTube), the iPad and our iPhones for about 50% of his viewing.  The other 50% being on a regular TV for kids shows that are available on Netflix and Amazon.  The great thing is the move to OTT has removed the advertising being pushed at our son.  Our viewing is restricted to those 1 to 1.5 hours in the evening when the kids are in bed and we have a little time to ourselves, generally viewing content from the TiVo / Roku connected to the HDTV in the basement.

In cutting the cord we have a deal with Comcast that gives us the Blast internet service (50Mbps claimed, 56Mbps achieved) for $50 per month, the nearest Verizon could come was $85 and half the download rate.  Though Verizon had the decency to send through a box for the equipment to be returned in the post rather than make us wait outside in the freezing weather in Union NJ as Comcast did when we last changed provider. The first bill with Comcast will be $85 as it includes $35 installation fee to get us up and running.  Savings in the first 6 months: $280 on the best VZ would offer, and $550 on what we were currently paying.

Evening TV viewing for us has improved, there’s always something that’s exciting to watch.  For our son he has his pick of all his favorite shows and more, he recently discovered Wallace and Gromit. Our experience of cutting the cord to date is it has improved the quality of our life; a couple of analogies I’d use are:

  • It’s like when you finally realize that eating a little less and exercising a little more (watching only what you want when you want) makes you feel a whole lot better (gives you more time in the day and leaves you feeling better entertained).
  • PayTV makes us pay for the buffet before we can get to the choice cuts, e.g. HBO.  OTT enables us to go straight to the choice cuts, though from the previous sitting (here the analogy breaks down a little as the entertainment value of a show does not go off, and gorging through a whole season of a TV show is just so much better an entertainment experience than the weekly drip feed).

Amongst my friends I see are range of OTT consumption models depending on the family’s stage of life.  Some friends work their way through the Netflix catalog over a few of years and then move onto Hulu Plus, others use Walmart/Vudu for watching movies on their home theaters (tend to be either no kids or kids are at least teenagers) as well as Netflix/Hulu, and most use Hulu Plus or Netflix as a complement to their existing payTV service.  I’ve not yet seen friends move back to payTV, but I’m sure there will be some in time.

In surveys I’ve done over the past year payTV providers are not seeing an exodus from payTV, rather Hulu Plus and Netflix are complementing payTV and hence expanding the overall payTV revenue pie.  But Netflix and Hulu Plus are changing people’s expectations on what an on demand service should be and the price point for a subscription to such a service ($8 per month).  People change habits slowly, and watching TV is a habit.  Sports and prime entertainment programming as well as existing viewing habits means most viewers will not migrate from payTV and the minority that do will change slowly.  But the key question is what will that % that cut the cord?

I’ll be publishing an update to the TV Delivery Evolution report next month and in it I include data from a end user survey.  50% of those surveyed consider their payTV bill to more than they would like to pay, with 20% considering it expensive and are evaluating options to lower their payTV bill.  Virtually all respondents view shows or movies from the internet, with 27% watching them on their TV (Netflix, Hulu plus, etc via Roku, Smart TV, Apple TV, Boxee, etc.).  My gut feel is likely 10-20% of households could by 2020 move to OTT.  With the rest of the market using OTT as a complement, or the payTV provider’s alternative, or the payTV provider offering customers the ability to choose their channels a la carte (as we’ve seen in markets like India).  But what happens to advertising revenues as that accounts for about 50% of the TV ecosystem revenues?  The OTT and IPTV providers enable individual customers to be targeted and to receive a slick and synchronized 1st and 2nd screen experience, product placement, interactive, targeted and local advertising.  The Cable TV providers will be challenged by the legacy STB issue and the failure of Canoe Ventures.

By 2020 the one thing we can be sure of is diversity of consumption from today’s domination by the payTV bundle.  But the thing to watch in how the payTV margins, advertising revenues and customer segments shift across the diversity of consumption models.  This is explored on the update of the TV Delivery Evolution report due to be released next month.  Looking internationally the US model will not be the model most countries will copy because of the diversity in those markets: differences in local consumption models and the importance of local content in some markets.

This decade is going to be an exciting time for the payTV industry, internet domination is not an inevitable conclusion.  However, flexibility is going to be critical to survive the changes, as in the limit its all about the customer and what they’re prepare to pay – which is dependent on their expectations…