MAY 28, 2009
Amid tighter budgets, more people are trying to save money by cutting their cable cords. In response, cable companies are beginning to experiment with new Internet services.
In what’s shaping up as the home-entertainment equivalent of severing a landline phone service, more people are joining the ranks of “cord cutters” by forgoing cable subscriptions that can run $60 or more a month.
Instead, they’re turning to free over-the-air high-definition television channels and video-game consoles, such as Playstation 3 and XBox 360. They’re also watching Internet-connected TV sets, paying a basic high-speed Internet fee of about $45, as well as set-top boxes from companies like Netflix Inc. Some are also using media browsers that they can download free and run on PCs, providing access to TV shows, movies and other content directly from the Web.
The number of cable cutters remains too small to threaten the pay-television industry. Still, large cable companies such as Comcast Corp. and Time Warner Cable Inc. are noticing that people are spending more time online.
“The reality is, we’re starting to see the beginnings of cord cutting where people, particularly young people, are saying all I need is broadband,” said Glenn Brit, president and chief executive of Time Warner Cable, during a company earnings call in February.
Earlier this year, Comcast began working on Web services that would stream cable-TV shows, often not available online. Last year, Time Warner Cable began an experiment in Milwaukee, Wis., where subscribers to its cable and Internet services and HBO could go to an HBO Web site and download content. These services would be available only to cable subscribers.
Comcast is also beefing up its Fancast Web site, which streams TV shows from the broadcast networks and is available free to anyone on the Internet.
“From a Comcast perspective, it’s an acknowledgment that consumers are spending more and more time watching video on their PC,” says Sam Schwartz, executive vice president for Comcast Interactive Media.
The cable-cutting trend isn’t just being driven by pinched personal budgets. It also comes as younger consumers gravitate to popular and free online video sites such as Google Inc.’s YouTube and Hulu.com, a joint venture between News Corp. and NBC Universal, which is owned by General Electric Co. and Vivendi. More content producers are also offering their TV shows and movies online through services such as Apple Inc.’s iTunes and Netflix.
Some 900,000 U.S. homes didn’t pay for TV and relied solely on Web TV last year, according to estimates from consulting firm Parks Associates, which projects that the number will grow this year. And 8% of adults now view television shows online at least once a week, up from 6% who did so in 2008, according to a survey by the Leichtman Research Group. The same survey found that 8% of adults who watch video online now watch TV less often.
Overall, while the number of households paying for cable rose 2% last year, pay-TV growth has slowed considerably. In the last three months of 2008, pay-TV penetration grew by only 0.7%, or 220,000 homes, its lowest rate on record, according to Sanford C. Bernstein & Co.
Daniel Bendett is one of those who became a cable cutter this year. Mr. Bendett, a San Francisco financial adviser, downloaded free of charge a media browser called Boxee on his Macintosh computer connected to his television a few months ago. The Boxee software creates widget-like buttons on a TV screen for easy access to personal digital content such as photos, music and movies and video sites, all with a remote control.
Now the 25-year-old says he and his roommates have decided not to pay for cable in their apartment. “Everything I need, I get from the Internet,” Mr. Bendett says.
Those who end up cutting the cord do pay a price in entertainment. Pay-TV services, like cable and satellite, still carry more live events, TV shows, movies and other content for viewers to watch than what’s available online. Web TV also doesn’t offer as much high-definition content as pay TV.
In many situations, consumers also have to watch the content on their computers, which can be less comfortable than watching TV on the living-room couch. And while they can connect their PCs to digital TVs and watch online programming with a remote control, that setup is still too techie for many consumers.
Some would-be cable cutters have pulled back at the last minute, in part because live events like sports are hard to find online. Rodrigo Gonzalez, 31, a stay-at-home dad in Los Angeles, connected a computer to his living room television and downloaded Zinc, a media browser from ZeeVee Inc., three months ago because he wanted to access Netflix’s video streaming site on his big TV. Through Zinc, he also accessed the Web sites for Hulu, Walt Disney Co..’s ABC and Time Warner’s Cartoon Network.
“If I wasn’t into sports, I would definitely just use [Zinc] instead,” Mr. Gonzalez says.
Others are still planning to escape the cable cord. Patrick Roanhouse, a 25-year-old information-technology consultant in Baltimore, Md., downloaded Boxee to his laptop last year and began using it to watch Web TV. Now he mainly watches TV from his bedroom by connecting his laptop to a 24-inch monitor, even though he still splits a $120 Comcast cable, Internet and phone bill with his roommate.
When Mr. Roanhouse moves into his own apartment in August, he says, he plans to drop cable service entirely. “The old cliché that we have 500 channels and nothing to watch is pretty much still true,” he says.
Write to Christopher Lawton at firstname.lastname@example.org