Cord Cutting Is Real and the Wisdom of Howard Beale

After a few almost breathless articles today about the "it's here, finally" prevalence of cord cutting (from Peter Kafka at AllThingsD and Todd Spangler at Variety), I felt it might be useful to pull back a little from the trees and look at the forest of multichannel television.

scissors are clearly not the right tool for this job

There are a two major points. First, the cost of the most popular cable packages (here meaning multichannel video whether from cable, DBS or telco providers) have increased for a long time at a rate much greater than inflation. Second, the penetration of multichannel television is very high -- 85-90% depending on who is doing the measuring. Both of these facts are acknowledged by everyone in the multichannel television industry.

In this context, the only ways for there to be no cord-cutting (defined here to mean someone who had a multichannel subscription and then gave it up -- whether or not he or she used online video as a substitute), would be if:

1. the value of the multichannel subscription were going up faster than its price -- more and better original programming, HDTV, VOD, TV Everywhere and DVR do support this; and
2. the price was still modest relative to household income -- uh, not so much; and
3. few decent substitutes existed for the service

A lot of discussion of cord-cutting to date has focused almost exclusively on the latter point -- are Netflix, Hulu Plus and YouTube a good substitute for a multichannel subscription? The short answer is, it depends. If you are a big fan of live sports, the answer is "no" -- none of these outlets provide much high-value live sports programming. However, big sports fans typically represent less than 40% of all households, far less than the multichannel penetration level (SkySports is about 1/3 penetrated to Sky in the UK; as a premium service, NESN's peak penetration in Boston was similar).

Still that leaves pesky point 2 and the issue of the other 60% of households. Maybe they look at multichannel television a bit differently than sports fans.

Maybe they look at it a bit like anchorman-cum-showman Howard Beale in the movie Network: "we are in the boredom-killing business".

Boredom can be pretty effectively killed in 60%+ of households without live sports. On some level, it is that simple.

As the inspiration for the articles, work by analysts Craig Moffett and Bruce Leichtman very clearly makes this point -- the increasingly high price of multichannel television is the biggest driver for canceling a multichannel subscription. Even with all of the most devoted and price-insensitive sports fans in the world locked in, the multichannel business would look at a lot different without those simply seeking relief from their boredom, sometimes in "unscripted entertainment" often not that unlike Howard Beale's show.