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Breaking Free

10/31/2008 8:00 PM Eastern

When Gordon Reeder got a 10% price hike on his Comcast cable TV service, the 49-year-old electronics engineer from Hillsboro, Ore., cancelled his account.

“I got tired of spending $45 per month so my kids could sit around and watch the tube all day,” he said, adding, “I’m also trying to balance the family budget, and I don’t watch a lot of TV myself.”

At first his wife and two kids objected, but the Reeder family discovered a simple truth that may reshape the business plans of many big media companies: Going cable-free is becoming easier than ever.

Thousands of hours of TV shows and movies are available for free on the Internet, or via paid download and rental sites — services made possible now that broadband service from cable and telephone companies is widely available. Local stations preparing for the digital-TV transition next year are already broadcasting free high-definition TV, sometimes at a higher level of signal quality than a cable system delivers.

And as the economy sours, more consumers may balk at shelling out up to $100 or more per month for cable if they can supplement their TV diet in other ways.



The Cable-Free Lifestyle
Those who cancel their cable TV service tend to:

SOURCE: Multichannel News research
• be technically savvy
• resent paying for dozens of channels they don’t watch
• want all their TV programming available on-demand
• not be passionate sports fans

Call them “cable-cutters”: tech-savvy individuals who once subscribed to cable TV but have severed the line because they’re now satisfied with the news and entertainment options available online (or over the airwaves). They also like the ability to buy their TV shows a la carte and being able access everything on-demand.

Though their numbers are a fraction of the TV audience, less than the 15 million or so households that rely only on over-the-air broadcasts, they represent a worrying trend for the pay TV industry. Reeder, who switched to Verizon Communications’ FiOS Internet broadband service, connected a Windows PC to the living-room TV and showed his kids, 5 and 12, how to get to episodes of their favorite shows at programmers’ sites, like Nickelodeon.com and DisneyChannel.com.

He set up an antenna to receive local TV stations, including digital subchannels the family wasn’t getting from Comcast, such as Qubo, the Ion Media Networks-owned children’s network.

And Reeder said he’s never at a loss to find something to watch online, accessing Internet video services including Hulu, Joost, Comcast’s Fancast, Veoh and Yahoo TV. He also likes Discovery.com, though he noted the site provides only a handful of full episodes at any given time.

“We actually get a much richer selection of programming over the Internet versus what we got spoon-fed from cable,” Reeder said.

The amount of video content now online that was previously available only on TV or DVDs has surged in the past year. One of the most popular Internet TV sites, Hulu.com, officially launched in March. It currently hosts 30,000 videos, including full episodes and clips from about 1,000 TV shows and 400 movies. The site, backed by NBC Universal and News Corp., offers a total of 5,000 hours of ad-supported video — more than half a year’s worth of nonstop viewing. All free to anyone with a Web browser.

Cable programmers like Viacom have gotten into the swing, too. Last week, MTV launched MTVMusic.com, a searchable collection of more than 22,000 music videos. Comedy Central has put clips online from every single episode of The Daily Show With Jon Stewart and all 12 seasons of South Park.

Meanwhile, a new crop of special-purpose devices, including those from Apple, TiVo, Sony Electronics and others, is designed to make viewing Internet-delivered video on a television dead simple. Just last week, Netflix and TiVo announced a partnership that will let customers with broadband-connected TiVos watch some 12,000 movies and TV shows on-demand, streamed by Netflix over the Internet (see story, p. 10).

Still, the number of people willing to dump cable and hunt for TV shows online is negligible, according to industry analysts.

“We’re looking at fairly technology-savvy people who are doing this today,” said Michael Wolf, director of digital home research for ABI Research. He doesn’t believe most people have the know-how to wire up their computer to their TV. ABI’s surveys show that more than 85% of Internet TV viewers watch the programming on a computer screen rather than a television display.

Dave Zatz, a blogger who writes about the TV industry and entertainment technologies, said Internet video is often of poorer quality and less reliable than cable or satellite services.

“While there are many newer options, I’d say they still aren’t ideal in replicating the couch-based experience,” he said. “Yet.”

Robert Rittmuller, though, thinks he’s found a perfect cable substitute: an Apple TV set-top.

Rittmuller, who lives in Cambridge, Mass., dropped Comcast cable service a year ago after his promotional monthly price of about $100 for a package that included several premium movie channels went up to $120.

“Initially, my biggest fear was that I wouldn’t be able to watch the shows I like,” said Rittmuller, 34, an information security and systems administrator who works for the U.S. government.

Today, every series he wants to watch is available free online or for purchase through Apple’s iTunes Store. Those include Sci Fi Channel’s Stargate Atlantis, Eureka and Ghost Hunters; USA Network’s Psych; Discovery Channel’s MythBusters; ABC’s Grey’s Anatomy; and Fox’s Bones. He watches episodes he buys through the book-size Apple TV unit connected to his TV.

Said Rittmuller, “It’s tough to justify paying $100 a month for TV programming when so much is available online.”

So far in 2008, Rittmuller said, he’s spent $480 on TV episodes and movies through iTunes — less than half what he would have paid Comcast for cable TV.

Alex Berger, a 23-year-old financial analyst in Scottsdale, Ariz., canceled his Cox Communications cable-TV service about eight months ago and found he could keep up online with shows like Fox’s Terminator: The Sara Connor Chronicles and ABC’s Dancing With the Stars and Lost.

The bigger adjustment for him was the lack of cable news programming. “That was probably one of the biggest reasons I kept my cable subscription as long as I did,” he said. In the last few months, he’s tapped his political fix with video from CNN.com and he watched the presidential debates live online as well.

Berger acknowledged that it’s a little difficult to find some TV programming on the Web. But, he added, “compared to not having any Internet, it’s been easier to live without cable TV.”

Online fare is skewed toward broadcast content. Full episodes of about 90% of broadcast networks’ primetime shows are available on the Internet, compared with about 20% of cable shows, according to Forrester Research.

That’s because cable programmers generate most of their revenue from affiliate fees, not advertising, said Will Richmond, president of consulting firm Broadband Directions.

“Cable networks are not going to do anything to encourage cord-cutting by putting their content online,” he said. “That undermines not only their own business models but also their best customers’ models.”

To take one example, the full-episode player at Discovery Communications’ video.discovery.com offers just a taste of its original programming, with 11 episodes of five shows from three networks. Discovery recently struck a deal with YouTube to create nine channels around its network brands — all designed to convert Internet browsers into traditional TV viewers.

Live sports is an especially key category of cable programming that remains largely unavailable online.

To be sure, there are some big events accessible on the Web. NBC, for example, this summer delivered 30 million live and on-demand streams of Olympics coverage over the Internet, and is offering a free simulcast of Sunday Night Football at NBC.com. Major League Baseball offers a slate of 2,430 out-of-market games per season through its MLB.TV subscription service, starting at $89.95. And last week Turner Sports announced an $89 package that offers a full season of live NBA game Webcasts — up to 40 per week — on NBA.com.

But to get the full complement of local sports teams in high-definition, pay TV services are the only game in town, said Ken Holsgrove, an HD programming consultant in Plymouth, Mich.

Comcast’s Detroit-area system, he noted, offers ESPN HD, ESPN2 HD, Versus/Golf HD and FSN Detroit, which carries most Pistons, Red Wings and Tigers games.

“That programming is just not available anywhere else,” said Holsgrove, who’s also the HDTV moderator for AVS Forum, a community site for audio-visual enthusiasts.

“I don’t watch the majority of what’s on cable,” he conceded. “But the channels I do like I want to have, and get them in HD if they’re available.”

Kent Nichols, a 32-year-old writer and director in Los Angeles who hasn’t subscribed to cable since 2002, said he’s not “a huge watching-TV-sports guy. That’s not a big part of my media diet.”

Living without cable TV, “you do miss some stuff,” he said. “But, basically, all the water-cooler moments are online.”

Mark McCullough, an information-technology administrator in Waukesha, Wis., said he doesn’t miss his Time Warner Cable TV service at all.

“One of the biggest differences is, we’re not sitting down and saying, 'I have no idea what I want to watch’ and randomly flipping channels,” he said. “Now when we sit down, we know what we want to watch.”

McCullough realized there were only three cable shows he and his wife watched — Sci-Fi’s Stargate Atlantis and Battlestar Galactica, and TNT’s The Closer — and each is available on iTunes for between $20 and $30 for a full season.

Since the dawn of the cable industry, there have been “cable-nevers,” those who just aren’t interested in paying for TV service.

Jon Bell, a professor in the physics and computer science department at Presbyterian College in Clinton, S.C., said the last time he had pay-TV service was in 1988 from Charter Communications. Bell receives over-the-air broadcasts and explains that he doesn’t subscribe to cable because he and wife aren’t big sports fans or movie buffs.

“When we travel, we often watch CNN and The Weather Channel in hotels, but it wouldn’t be worth it to us to pay the usual monthly cable or satellite fee to get them here at home,” he said.

What makes many of the new cable-cancellers different is that, until recently, they’ve been paying TV customers.

Ruth Tillman of Hyattsville, Md., cut off Comcast basic cable in mid-October. She and her husband bought a digital-to-analog converter box for over-the-air TV reception, redeeming a $40 government-issued coupon, and found — to their surprise — that the broadcast signal was much better quality than the channels Comcast was delivering. And she realized they could catch up with shows on the Internet, at Hulu and other sites. “After that we didn’t see any need to keep it,” she said.

But even with consumer confidence taking a nosedive, analysts don’t expect a wholesale wave of cancellations anytime soon.

Entertainment spending outside the home, such as movie theater visits, will be scaled back first, according to a recent survey conducted by Toronto-based Solutions Research Group. “The perception is that it’s cheaper to get entertainment at home,” said SRG analyst Kaan Yigit.

Cable is “not going to be something you necessarily drop,” Yigit said. “You might trim the fat around some of the things. But if you’re going to stay at home for your entertainment you need to have something to watch.”

 

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