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The Cost of Pay-TV vs. Cord-Cutting

This week Luke Bouma over at Cord Cutters News did a great job picking apart a story published by Quartz claiming we cord-cutters aren’t saving any money. Essentially, Quartz was pushing the idea that cord cutting is just as expensive as cable using a study that wasn’t comparing apples and apples.

While anyone who has cut the cord knows it can save considerable money relative to pay-tv, I want to prove this using actual numbers and showing my work.

The Cost of Pay TV

Finding the pay-tv side of the equation is fairly straightforward. Market research firm Mintel stated in a 2015 report that the average cost of pay-TV bundled with internet access was $132 per month. If we assume a cable bill has 4% inflation (which is a low estimate,) the 2017 cost of a “double-play” bundle would be $148 per month.

This number seems to be in line with not only with other studies I’ve seen but the anecdotes of commenters on this website. The 2015 number is also in line with a 2014 story I wrote showing real-world examples of how the pay-TV industry hides the real cost of subscriptions behind attractive promotional pricing.

Ultimately, there is some strong quantitative and qualitative evidence that $148 is a good price estimate for the monthly cost of cable TV and internet.

The Cost of Cutting the Cord

The cost of internet varies in the U.S. based on the number of ISPs offering service in a given area. Generally, where there is competition, there is lower pricing. While you can find great internet only plans for less than $50 per month, the average tends to be a bit higher. A recent study put’s the average internet costs in the U.S. at $66.17 per month.

Finding a good comparison price for internet is easy. The difficult part is estimating the cost of streaming services when there are so many out there to choose from. While every “hot take” on cord-cutting being expensive assumes a person will buy every service out there, that is not really what is happening. In fact, only about 25% of households without cable decide to purchase a live TV streaming service.

According to Nielsen, there are roughly 21.7 million households without pay-TV. Subscriber estimates from Leichtman Research Group show about 1.7 million and 800,000 subscribe to Sling TV and DirecTV respectively. Benjamin Swinburne, a Morgan Stanley analyst, estimates Hulu Live has somewhere in the vicinity of 250,000 subscribers while YouTube TV has 400,000.  Other analysts see PlayStation Vue around 670,000 subscribers, while other subscribers (FuboTV, Philo, etc.) pulling in around 300,000 subscribers.

So if we make a few assumptions about the tier subscribers for each of these services we can estimate the total dollar amount spent on these services.

  • 1.7 million Sling TV watchers paying roughly $25 per subscription comes to $42.5 million
  • 800,000 DIRECTV NOW subscribers at $40 a pop amounts to $32 million
  • YouTube TV 400,000 subscribers multiplied by $35 amounts to  $14 million
  • Assuming $50 for each Hulu Live TV subscriber comes to $12.5 million
  • PlayStation Vue has  670,000 subs at around $45 each comes to 30 million
  • Let’s assume the leftover 300,000 pays around $35 each for a total of 10.5 million.

All together that is $141.5 million those without cable spend on live streaming services. However, that isn’t all we need to account for when it comes to cord cutting. What about premium services like HBO and Showtime. What about Netflix, Amazon Prime, and other on-demand services. Don’t fret, I have another study. This study from CG42 surveyed cord cutters to get a breakdown of streaming services used. According to their numbers, 93% cord cutters used Netflix, 55% used Amazon Prime, 38% used Hulu’s on-demand version, 28% had HBO, 11% had showtime and  7% used  CBS All Access.

Of Nielsen’s 21.7 million cord cutters, only 15.3 million use broadband to watch TV. So we can estimate a cost that all cord cutters pay for these service based on these numbers.

  • 38% of 15.3 million use Hulu on Demand at $7.99 a pop for $46 million
  • 28% of 15.3 million use HBO Now at $15 each for $64.26 million
  • 11% of 15.3 million use ShowTime at $11 a month for $18.5 million
  • 7% of 15.3 million use CBS All Access at $6 a month for $6.4 million
  • and let’s throw in another 10 million for Starz and other services I can’t think of

If we take these services and add them to the $141.5 million we calculated for live TV services we have $286.7 million.

Now more than half of the households in the U.S. have Netflix and Amazon Prime which means that 50% of folks that cut the cord already have the service. It wouldn’t be fair to count a subscription to either of these if the person had this service prior to cutting the cord. To account for this I’m going to weight these service by 50%.

  • Half of 15.3 million X 93% X an $11 Netflix subscription = $78.26 million
  • Half of 15.3 million X 55% X a $8.25 Amazon prime subscription = $34.7 million

This brings our total costs of all subscriptions to $399.67 million. This is a decent estimate of what the  15.3 million cord-cutters with broadband spend monthly on streaming services. If we break that down, each cord cutting household will spend an average of $26.11 on services.

If we add that to the $66.17 average cost of broadband access in the U.S, the total monthly cost for a cord cutters TV and internet is $99.28.  This is an average saving of $48.72 every month. That is nearly $600 a year.

What Cord-Cutters Really Save

While our numbers exercise showed the average internet and TV cord cutting solution can save around 33% compared to cable, that isn’t the whole story.

Let’s not forget, according to Nielsen we have 6.4 million households that just watch over the air TV on an antenna in addition to the 15.3 with broadband access.  If we factor the 6.4 million households that essentially watch TV for free, the average household without cable only pays only $65.08 per month.  That’s a saving of about $1000 a year over subscribing to cable.

Keep in mind these are averages. Your savings will vary based on where you live. For example, in my area, folks can pick up a 100 Mbps internet connection for $39.99 per month. Using an antenna, Amazon Prime and Hulu you can cut the cord for under $60 per month.

Also, note that nearly all streaming services do not require yearly contracts. Therefore, cord-cutters have the ability to add and drop services based on seasonal programming. This can lower costs even more. In today’s media, a contrarian hot take will get clicks so you’re going to see the anti-cord-cutting article every now and again. However, the numbers show cutting the cord can save you money. How much is up to you.

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Categories: Tech News
Dennis Restauro :Dennis is the founder of Grounded Reason. He also hosts the Grounded Reason Podcast. Follow him on Twitter: Follow Dennis on Twitter

View Comments (8)

  • The biggest concern I have is around recording shows. While live TV is great, and what we watch the most, I want to record shows, both from my antenna and streaming service. What is the best option?

  • I enjoyed reading the math to get the real cost of cord cutting.
    Here is a personal view.
    I was a DirectTV customer for 22 years. The rate kept going up and up. Eventually it was $115.month. This was not the highest level of options.
    Where I live, Internet connection is only available via satellite. I have had that for years (6?) and pay $60.month.. (New Hughesnet customers pay only $40. No discounts for loyalty.) So, I do not include Internet costs in my cord cutting costs,
    Two years ago I bought a TabloTV OTA, an external hard drive, and an antenna. After set up and working I called DirectTV to cancel. They kept offering a lower price until their "lowest price" of $40 (plus fees.).
    I canceled.
    I paid Tablo $49 for a year of program guide. Since then I paid the lifetime fee.
    I recovered my setup costs within six months of _not_ paying DirectTV.
    I consider my net cord cutting costs to be less than zero. I am money ahead.
    The only programming I missed were the Discovery channels Philo looks good. Even with $16/mth I am still way ahead of DirectTV.

    BTW: Two days after canceling DirectTV I received an email from them offering $20/mth for 12 months. (plus fees) . I am no longer interested in DirectTV,

    • Thanks for sharing your story! It's great for others to see people besides myself talking about their experiences cutting the cord.

  • Why is it that when discussing the "cord cutting" option, there is never any mention of bandwidth limits or the simple fact that eventually, as media moves away from cable and is simply streamed, that Internet providers will simply raise the price of bandwidth. Even if you can get a high speed internet for $60 per month you are still limited to the amount of bandwidth that you can stream. Might work for someone that doesn't watch a lot of tv, but households with children might use more. And eventually, when the cable tv model disappears, the same companies that provide Internet will simply double or more the price.

    • While that is possible, it's kind of a ridiculous argument to not save money now. Furthermore, this won't apply to everyone. 40% of the country have 2 choices of provider. Those places will see price competition. Further still, LTE advanced and 5G fixed wireless will provide some competition as well. I agree we need A LOT more ISP completion in the residential space. However, I don't think it will be as gloomy as you envision. At least, not for everyone.

      • Do not see how. There will have to be a lot of competition to make the big ISP's give up all that money, not to mention their stockholders. But I hope you are right. Right now we have one ISP that we can count on, with the possibility of one other moving in. The cheapest rates will not handle streaming. So there is price to consider. Speed. And recently, the number of devices connected.

        • I have a 50 Mbps internet connection, watch everything I want and save $1000 a year. I've been doing it for 5 years now.