The Great Unbundling and the Cord Cutter: Will it drive prices higher?

This was a huge week for Cord Cutter news. Both  CBS and HBO announced new streaming services. But is this the beginning of the a la carte dream cord cutters have been waiting for? Some say no, be careful what you wish for, because in the end it will mean only less channels for higher prices.

Will we need a loan if we leave the bundle? photo: "Diaper" on Flickr

Will we need a loan if we leave the bundle?
photo: “Diaper” on Flickr

According to FierceCable and the Wall Street Journal the prices for a family that will choose several streaming services (e.g. HBO, CBS, Netflix) might end up being MORE than the typical Cable bill. Really? That doesn’t seem obvious to me but let’s do some back of the envelope calculations.

Let’s say I’m a basic basic cord cutter, with just Netflix and an Antenna and I decide to add  the new CBS and HBO streams to have those additional channels. I’ll call this the:

Basic Streaming Bundle

Service Monthly Cost Notes
Antenna $0.00
Netflix $8.99
CBS $5.99
HBO $15.00 estimated
subtotal 29.98

But I’m missing a lot of cable content, reality shows, other networks, etc.  so I’ll add Hulu to pick up some of them. And of course the cord cutters Achilles heel – SPORTS. Assume the best and that ESPN finally gives in to unbundling. We have to take a guess at the cost but assume it will be something more than any of the above services and I’ll go as others have speculated with $25 per month. I’ll call this the:

 

Premium Streaming Bundle

Service Monthly Cost Notes
Antenna $0.00
Netflix $8.99
CBS $5.99
HBO $15.00 estimated
Hulu Plus $7.99
ESPN $25.00
subtotal $62.97

 

So as you can see, making a few assumptions and guesses, we have a monthly bill of $62.97 – not  cheap but still less than the average Cable bill of $90+. Of course it wouldn’t be hard to exceed $90  just by adding another new streaming service or two.

 But there is something missing with the argument that unbundling will lead to higher prices – the market. It’s a fallacy to assume that ESPN or HBO can simply charge what they want.

One leading theory is that if you unbundle content the price per consumer goes up because the content is no longer subsidized by all those cable customers being forced to take it. Wrong! The market drives the price and if the consumer is willing to pay only $1.00  per month say for the Golf Channel, then that’s what will determine the price.I f the Golf Channel goes out of business at this rate, so be it. Or think about it another way: why is Netflix only $8.99 per month?

In a way the great unbundling does open a Pandora’s box for content providers. The internet has made every other service cheaper – consider music, travel, consumer goods, through the process called disintermediation. If Cable becomes unbundled it will be no exception.


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8 Responses to The Great Unbundling and the Cord Cutter: Will it drive prices higher?

  1. Bob A. says:

    You can eliminate the CBS Streaming also if your antenna gets OTA CBS.

  2. Len Mullen says:

    hang on there, cowboy. you aren’t going to stream any of that without an upcapped, unthrottled, high speed internet account. add $50 to your monthly nut for that. Don’t forget to included the amortized cost of your hardware and support costs too.

    Don’t expect to save much when you unbundle.

    • Greg says:

      Well yeah Len, but I consider these days most people consider internet service a mandatory thing, even if they aren’t cord cutting. So I didn’t include it. I do think if you put together your original cable line-up via a bunch of new streaming services that WILL cost more. But most people won’t do that. The whole point is to eliminate what you don’t want.

      • Len Mullen says:

        People always say that, but you need to break that cost out of your Comcast bundle to do the math. For instance, it costs me $0 per month for OTA. If I decide to add Netflix, that is $9 PLUS $55 for internet access — $64 a month is a lot for HBO. For $55/month, I can get Comcast Internet Plus with HD and a modem for 12 months.

        That $55/month includes hardware and support. If you buy a Roku 3 ($100), install it on your network and television, subscribe to HBO ($?), and you are buffering or your Roku is rebooting, or you cannot connect at all, who is going to fix that?

        OTA and OTT are alternatives to premium providers, and I am a cable cutter myself, but expectations have to be realistic. Realistically, you may save a little money, but none of the alternatives are free, there is a lot of programming out there, but not as much quality programming as you get with a premium provider (esp. MLB, NBA, NHL), and things do not always work as promised. Visit the Roku, Simple, Tablo, or Mohu Channels forums to see how badly things can go.

        One thing I would like to say about this ‘unbundling’ phenomenon is that the term is not reflective of what is going on. No one is unbundling anything. Comcast still offers a discount when you buy both tv and internet, Verizon still bundles sports packages, and Dish still bundles programming. All that is happening is that the content providers are ALSO marketing the individual pieces. I believe they are doing this to leverage exclusive deals.

        I don’t think any of this is very important for the consumer.

        • Alan says:

          There are a lot of things I challenge about your statements..

          First of all. $55 for cable and Internet. That’s a fantasy concocted by the cable company. It sounds like you’re quoting some advertised commercial price because you tacked on the “for 12 months”.

          1) What happens after that 12 months
          2) That price does NOT include equipment and fees which always adds at least another $20. I’m also quite certain HBO is not including in that price, so if you’re going to compare that to streaming, then you need to remove HBO from your streaming too.

          Aside from all of that. I have an uncapped, unthrottled internet connection from COMCAST… the WORST cable and internet provider in the world. I have no cable from them and I pay $35 a month (including the router) for 20/20 speeds. More than what I need.

          They are quite aware I don’t have ANY cable (not even basic) and my price is still quite low. Why… because I have the wherewithal to order my packages online where the pricing is always half the price of anything they offer over the phone.

          You talk about streaming equipment prices, but the truth of the matter is, many people already have the needed equipment: smart TVs, gaming devices, many blue ray players, all these things already have the ability to add the most used channels (Hulu, Netflix, Amazon, etc) already.

          But, let’s say you get a Roku.. .first of all there are 3 versions of the thing, if you want to go cheap, you can get one for $50 or less. And as far as “what if they break”…’ve had a Roku2 for 3 years now, and it has NEVER died… can’t say the same for any cable box I’ve ever owned. Secondly, dealing with the cable company when something goes wrong is a form of CIA torture. Sure there are people who have had problems with their streaming devices, but there are entire websites and Facebook pages DEDICATED to airing the grievances of people who hate their cable companies… so I think all in all, people are much happier dealing with the less frequent problems that occur from owning a streaming device

          Plus, you are constantly paying for a cable box, $10, $15, sometimes $20 a month. So even if you bought a $100 Roku3, that’s still less than a year of paying for a cable box. You’re still saving.

          Also this argument about far less content is subjective. It depends on what you want and how much of an addict you are. I have Hulu and Netfix and I’m never bored… I don’t need more, I can’t consume more… I always have something to watch… so what if there isn’t more… I have enough to keep me entertained so that’s all I need. There are only so many hours in the day you can watch TV, so why do you need 200 channels of 24/7 content that you have to flip through to find something when you can just pick a show, and binge watch it for a couple of hours until bed time?

          And from my experience. I was paying Comcast $130 a month for cable and internet before I cut the cord. Now I pay a total (including Internet) of $52.

          That’s not “saving a little” that’s at least a 60% savings.

          Realistically, once you cut the cord and start consuming content differently, you quickly realize how much you don’t miss cable. It’s like when you stop smoking and then months later you can’t even stand the smell of smoke. I:)

  3. tapersmith says:

    Here is the thing, once there are enough streaming services prices will drop, why? because right now advertisers are fooled into thinking there is a larger audience then they really have, with streaming if they pay per actual stream, they know they have a person watching who cannot skip the commercial, they will pay more per stream, the broadcasters will be competing to get more viewers which will keep prices down.
    Yes there will be a few casualties of some programming that just won’t make it, however the wonderful thing about the internet is it will spur those who have interests in those niches to create content, first on you tube and then on their own Roku channel. It will take a while for the quality to get there, but it will get there if there, it will allow many start ups to have a chance to make money broadcasting.

  4. Greg says:

    Thank you Tapersmith for your comment. One thing I don’t see is the average consumer subscribing to a bunch of individual streams, e.g. CBS, ABC, Fox, etc. That seems just too inconvenient.

    The Cable bundle, and the old fashioned ability to surf is not a bad thing. A la carte is the ideal, but not a do it yourself a la carte. I’m thinking more that you’ll be able to assemble your own custom channel lineup.

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