Cord-Cutting: The Real Story Behind the Myth

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It's an appealing idea to ditch your cable TV provider for much cheaper alternatives. Since there are now a host of such plans, there has been much talk of "cord cutting," or the symbolic severing of that cable in favor of alternatives.

Conventional wisdom has it that customers who ditch cable replace it with video streaming services like Netflix (NFLX) or Hulu Plus. Surprisingly, however, that's not necessarily where the lost subscribers end up.

Staying Tuned

Contrary to popular opinion, the wider pay-TV universe isn't really losing much business to the Netflixes and Hulus of the world.

According to data compiled by Leichtman Research Group, the top 13 pay-TV purveyors in this country -- including cable, satellite TV and telecom companies -- saw a net loss of approximately 125,000 video subscribers in 2014.

At first glance, 125,000 is a big number. But the surveyed companies collectively broadcast their product to over 95 million customers. So the net loss was barely over 0.1 percent of the total. So the overall migration away from traditional pay-TV services is fairly limited.

See You Later, Cable

However, the picture shifts when we look just at cable companies. They're shedding subscribers in notable numbers (nearly 1.2 million net in 2014, leaving a total of just over 49 million). Meanwhile the TV service bundles provided by telecom incumbents AT&T (T) and Verizon (VZ) added them at a rapid clip, according to Leichtman. All told, the two companies took on just over 1 million new subscribers last year, padding their combined total to almost 11.6 million. Meanwhile, satellite TV companies DirecTV and Dish added a combined 20,000 subscribers last year.

Cable customers are ripe for the poaching, not least because the cost of such services keeps rising. That isn't necessarily because the cable companies are getting greedy, however.

Retransmission fees -- effectively, the cost of content from popular cable channels like AMC Networks' (AMCX) flagship AMC or Disney's (DIS) king of sports, ESPN -- have been increasing significantly over the past few years. Those expenditures are being passed along to end users, at least according to the cable providers.

But a rapid upward climb in costs isn't the only problem. After all, the satellite services have to cope with it, too. Compounding the issue for cable is its abysmal record in customer satisfaction, the rates of which are stubbornly low. A recent article in The Washington Post revealed that 53 percent of surveyed cable subscribers would abandon their service if they had a viable alternative.

Hard to Say Goodbye

That's a big "if." One major reason that the adoption of phone company and streaming services hasn't been higher is that switching from cable to either is not particularly easy to do.

The telecom offerings -- AT&T's U-Verse and Verizon's FiOS -- are run on fiber-optic cable networks. Compared to traditional cable, this technology is younger and less built-out. Fiber services are available in far fewer markets, typically metropolitan areas of selected cities.

U-Verse, for example, is an option in only nine municipalities, typically locales with a strong tech industry presence. These include San Jose, California, and Austin, Texas. People in New York or Los Angeles are out of luck at the moment.

Streaming services would appear to have the advantage, then, as they require only a strong Internet connection. The problem is that there are many streamers, and they usually have different price points. So planning a "menu" of services that both covers the needed viewing choices and is sufficiently cost-effective can be a challenge.

Considering that a host of streaming subscriptions probably requires more management than a one-stop, single-price cable package, the savings achieved might not be worth it for many people.

Snip, Snip

Until a clever someone or company devises a product that's both highly convenient, compellingly inexpensive, and packed with every one of a viewer's favorite channels, cord-cutting will probably remain limited to cable-to-satellite defections.

In the meantime, those interested in untethering entirely from cable and satellite can avail themselves of a host of online resources to help them choose the appropriate services for their tastes. Time magazine has a good resource, as do PBS and The Verge, which offers a convenient interactive guide.

Motley Fool contributor Eric Volkman owns shares of Walt Disney. The Motley Fool recommends AMC Networks, Netflix, Verizon Communications, and Walt Disney. The Motley Fool owns shares of AMC Networks, Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. Check out our free report on one great stock to buy for 2015 and beyond.
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