Cord Cutting with Apple TV May Not Save You Money

| Analysis

Even though it’s not widely done, cord cutting gets a lot of publicity. If you’re caught up in the hype of an Apple TV as your only TV source, some basic analysis is in order because, depending on your TV viewing habits, cord cutting could end up costing you more.

I have seen people agonize over their gas mileage with a pocket calculator, but I have rarely seen the discussion of cord cutting get beyond the argument that “cable costs too much and the price keeps going up. I’m canceling.” Here’s some analysis to help you decide if you want to, say, buy an Apple TV and “cut the cord.”

Assumptions

First, I need to make some assumptions that will make the math easier: 1) An hour of HD video is very roughly a gigabyte of data. More or less, 2) almost all of our watching is in HD nowadays, 3) a month has 30 days, and 4) an average monthly cable or satellite bill is $80 and an average ISP bill for 12 Mbps service is $50.

Calculating the Cost

Let’s look first a cable or satellite TV. It’s unlimited. If your spouse and (optionally) kids have different work/sleep cycles, the TV could be on 24 x 7. That’s 720 hours (gigabytes) a month for $80. That works out to 11 cents per gigabyte.

When internet service was unlimited, the most time you could be on the Internet was also 720 hours a month. If you spent all that time watching video, that would be 720 GB for $50, or 7 cents/gigabyte, a better deal than cable and the source of the historic lure for cord cutting. But now that we have caps, the game has changed. If you want to stay under the cap and avoid surcharges, you’ll be limited to, generally, 250 GB. That’s 20 cents/gigabyte, twice the intrinsic cost of cable.

Even though cable looks better in terms of cost per gigabyte, the rationale for cord cutting is to reduce total out of pocket costs. So if your cable bill is more than than your ISP bill, why not cut the cord and buy an Apple TV. Or a Roku box?

Analyze Your Family Habits

The answer depends on your viewing habits and the availability of the content you like. Research has shown that young people just out of college don’t like paying cable bills and they tend to watch miscellaneous content as opposed to first run TV, much of it free or mildly ad supported for that very reason. It’s older. For example, “Hill Street Blues” on Hulu with modest commercial interruptions. If most of your content is free in that fashion, then cutting the cord is realistic. Also, if you’re not into live sports, then that’s a plus as well because major, live sports broadcasts are only recently and slowing seeping onto the Internet - often with lingering limitations and added costs.

On the other hand, if you’re a more traditional viewer, like me, and you just have to see the latest episode of “NCIS” (CBS) or “Castle,” (ABC) then you may be better off supplementing your Internet with cable or satellite and a DVR. That’s because a DVR allows you to record first run and sports content and then later watch, skipping over the commercials.

The Irony of iTunes

For the cord cutters, iTunes affords an oxymoronic luxury of buying the first run episodes of many (but not all) popular shows on NBC, ABC, and FOX (but not CBS) a few days later that are commercial free. For this luxury, you’ll pay a whopping $3 per gigabyte (a 42 minute episode), enormously greater than the few cents per gigabyte of data delivery. And that’s the key. If you do this three times a week, your iTunes account will be billed $36/month and will easily gobble up the difference between your ISP and your cable bill. But because your iTunes bill shows up buried on a credit card and e-mail, it’s easy to overlook.

The upshot is that if you cut the cord to save total out of pocket costs, you’ll be very financially limited in your ability to buy prime content on iTunes. You’ll be relegated to older content of less value. If you’re into first-run TV and sports, it would be better to keep your cable (satellite) and the DVR and suffer through some button pushing to skip commercials.

Of course, if you just can’t afford both, then the cable TV has to go. The Internet is essential in this era for job hunting and social networking.

Cord Cutting: Lots of Hype

It turns out that because of the economics I cited above, cord cutting isn’t as popular as you might believe. Studies by Nielsen and Frank N. Magid have verified that only a percent or two of Americans have cancelled their cable bill and use the Internet exclusively. (And that may have been due to job layoffs, not technical preference.) In addition, I’ve noticed that a lot of cord cutting articles that fan the flames are by tech columnists who are in experimental mode and want to justify an article about the Apple TV*, Roku or Boxee boxes. Their fun can be a severe case of misdirection for you.

Content Management. Who Me?

The bottom line is that even though cable and satellite charges seem high, you get a lot of content for a pretty low price per gigabyte. Throw in a DVR to skip commercials, and you can save a lot of money compared to $3/episode on iTunes.

Another emerging, nagging issue is what to do with all that content you bought. It’s on a hard disk, taking up space. You have to back it up. That means more attention, more cost. It’s questionable whether you’ll be able to hand an iTunes library down to your kids, and in some cases, if you have a favorite TV series, like “Dead Like Me,” it’s better to buy it on DVD or Blu-ray and physically give it away when the time comes.

Dénouement

In summary, most of us mix and match. The buying experience of movies on Apple TV is superior to that of the cable company, but, in contrast, I don’t need to own a copy of every episode of NCIS. (I do, however, need a copy of every episode of “Defying Gravity.”) So with so many people with so many different interests and needs, it pays to optimize, mix and match, seek the best user experiences, do some math (egads!) and be tolerant of a few commercials that can be skipped with a DVR.

A hasty rush into cord cutting, however, could end up costing you a lot more than before unless you’re one of those people who just never pays for anything. But then, that’s a fairly ascetic life style.

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* One of the best kept secrets of the Apple TV is the menu option: Internet -> Podcasts -> Providers where you find a boatload of terrific, free content — more than you could watch in a lifetime. But it may not be your cup of tea either.

Comments

Mike Weasner

Of course, if you have slow DSL like me (I just recently got upgraded to 3mbps, or in reality 2.3-2.8mbps), downloading large HD video is out of the question.  So, we stick with DirecTV and its very high quality HDTV. The time for downloading and the cost (and availability) of real high speed Internet access needs to be factored in when decided whether or not to cut the TV cord.

Aaron

You seem to have forgotten that they actually transmit HD over the air. I have Basic TWC in order to get local channels better but they have recently bumped the price up to $23/month. They sent out a letter stating it is so they can provide better services to me. Well, I don’t qualify to use the iPad app, they’ve moved most of the access channels to requiring a box and the half that I can see are now all in Spanish. So my channels have been quartered and my cost has more than doubled since I first started with Basic service. I’m ready to cut the cord and watch free TV. I have an ATV and PS3 with RoadRunner standard service.

D9

It should be noted that with cable TV, programming comes in packages or tiers. This can lead to having a lot of channels you have no desire to view but pay for nonetheless. In addition, I may need to purchase 2 or 3 packages (movie channels, HD tier, etc.) to obtain all the channels with shows I want.

So while the metrics state I’m available to a lot of gigs of TV shows, I may in reality only need 1/2 of that for the actual programming I want.

/

iphonzie

We cut our cable 2 years ago, and have been quite pleased with the results. We have 3mbps DSL and I use a Mac mini (not an Apple TV, though our son happily uses ATV in his college apartment) to feed content to my living room TV, mostly streaming Hulu (free, not plus) for current episodes of most shows we care about (including Castle) and Netflix for older shows and movies.

CBS shows are not on Hulu, but can be watched on cbs.com if you can put up with their irritating Flash interface that insists on exiting full screen mode and playing very loud commercials. CBS content IS available on iTunes (including NCIS) - we bought the standard-def season pass to The Good Wife, which dutifully shows up on my mini the day after each broadcast. For the most part, we ignore CBS’ existence.

We also rent a few movies per month from iTunes, as the extra couple bucks saves a trip to the nearest Red Box machine, though we do use Red Box sometimes as well. We have stopped buying DVDs, and don’t plan to invest in BluRay at all.

The toughest issue for some, though it doesn’t bother me much, is the availability of live broadcasts such as sports and award shows.

Lee Dronick

It should be noted that with cable TV, programming comes in packages or tiers. This can lead to having a lot of channels you have no desire to view but pay for nonetheless. In addition, I may need to purchase 2 or 3 packages (movie channels, HD tier, etc.) to obtain all the channels with shows I want.

I am thinking that they do that on purpose. They tell me that ? la carte service would not work and be too expensive because the popular shows subsidize the less popular one. I am not sure of that and I would like to see them give it a try.

I am still on basic, analog, cable. When I tried digital I had problems with their unreliable boxes. Not to mention the cluttered remotes.

wab95

I am still analysing our family’s TV watching habits, which are modest.

All of it is HD.

My kids do not watch TV. Period. Movies, yes (Netflix, iTunes) and Youtube on their computers.

My wife watches talking heads on Friday nights and Sunday AM. Occasionally, the Newshour.

I watch the news (BBC, CNN) during predawn workouts, however I could get these via internet and stream to the TV via Airplay.

As a family, we watch one, sometimes two movies on weekends, usually from iTunes.

I initially thought that we could cut the cord, but discovered hidden costs. My wife (not I) will watch the Superbowl (I never got into American football - seems a mislabelled sport). But that can be managed.

More importantly, we support two public radio/TV stations, which we watch in HD via Comcast. It occurred to me that support of the local PBS stations, which in turn help support the local arts, is something we care about. These could lose our support if we switched off cable.

Although this is not the only means by which we support the arts, this remains a strong inhibition to cutting the cable, and will require further thought.

Peter

I’ll actually second those who bring up OTA (Over-the-Air) for things like live sports.

For example, I’m a football fan.  I like to watch the football games on Sunday.  They are available on CBS (KCBS channel 2 around here), FOX (KTTV channel 11), and NBC (KNBC channel 4).  All of these I can pick up just fine with a rabbit-ear antenna.

I’ve debated “cord cutting.”  I’m not an avid TV viewer—my only real TV vice is Chuck on NBC and Amazing Race on CBS.  There are a few random cable shows that I catch on occasion.

But most of what I watch is movies—I have HBO, Showtime, Cinemax, Movie Channel, Starz, and Encore.  I could replace this with NetFlix.  The problem is that I tend to enjoy the serendipity of watching a good movie that I probably wouldn’t go out of my way to rent.

For example, the other day I flipped on the TV and there was “West Side Story.”  I enjoy that movie, but I probably wouldn’t think to put it on a “rental list.”

Terrin

I cut the cord and have never been happier. Comcast sucks. I was going to get an Apple TV, but then somebody bought me an X-Box Kinect for Christmas. It serves the same functions (although in a less elegant manner). There is a free ESPN application (I caught all the college bowl games I wanted for free); Netflix application; and Hulu Plus application.

I also have an excellent library with recent DVDs. Also, I have not had a need yet, but my friend has an HD adapter and watches regular TC. Most networks broadcast multiple channels. For instance, the Super Bowl was broadcast over the regular airwaves.

I paid Comcast $140 a month and would always be struggling to find something interesting to watch. I have a special AT&T DSl deal where I pay $20 a month. Netflix gets $9.99. Currently, I have a free trial of Hulu Plus, but am considering paying the $7.99 a month. So, for forty dollars a month I have more to watch then I have time to do (this will go up to sixty when the AT&T deal expires). .

beverson

I’m a very happy cord-cutter, and I second a lot of the good followup in the previous comments. One thing I’d like to add: my wife and I both work partly from home, so we can easily justify high-speed DSL (currently 40 mbps down) as partly for work purposes. Yes, we also stream Netflix, Hulu, and I watch MLB games online too. But there’s no way we could justify a cable or satellite TV package for both work and leisure. I’m sure some could, but probably not many.

Also, I feel like the 720 hours a month estimate is crazy. Who watches that much TV?? I guess if you’re already paying for it, the TV is already on and becomes background noise. But not only is that not the way I want to live my life, it doesn’t seem to be a fair comparison. Without actually running any numbers, I wonder if a more moderate hours-per-month calculation would change the economics of John’s argument.

John Martellaro

beverson: the 720 hours wasn’t an estimate. It was a mechanism to calculate the lowest possible cost of each system and put them on common ground.

Cress

More importantly, we support two public radio/TV stations, which we watch in HD via Comcast. It occurred to me that support of the local PBS stations, which in turn help support the local arts, is something we care about. These could lose our support if we switched off cable./quote]

Why would they lose your support? You can get PBS TV over-the-air free (in HD), and you can financially support them any time you want to during pledge drives or on their website. Same with radio. You don’t need cable/satellite to support PBS at all.

I personally am satisfied with over the air TV and a Tivo to record stuff for me. I also sometimes watch internet videos on my computer, but usually not for long TV shows and movies. I also buy some TV from iTunes. For me it’s cheaper to spend my money on my internet connection than to spend it on cable/satellite as well.

wab95

@Cress:

You make good points. In brief, when we first moved to our home in the USA, the OTA reception was abysmal. I have to admit, I have not tried it in HD, but I doubt it would be much improved. It seems to be a regional phenomenon. Most people I know in this area who go with OTA solutions (a vanishingly small number in my circle) have poor to very poor reception.

I appreciate the call to a greater sense of commitment to public broadcasting, however. In fact, we do not contribute during pledge drives, but automatically online to both the stations and the local symphony, so perhaps my argument is a charade.

Mikuro

I cut the cord a couple years ago, when I decided the cost of cable TV was more than I could justify. I don’t have any fancy alternatives to solve the “no TV” problem—I just don’t watch TV anymore.

At first I thought I’d use over-the-air HDTV, but I’ve been so disappointed with it that I never use it. I think digital OTA TV is a total crock. It used to be that if you had a bad signal, you’d just get slightly worse image and sound quality. It was still watchable. Now if you have a bad signal, the audio cuts out and the screen constantly goes blank. It’s utterly unwatchable. This is not progress. :(

So I haven’t watched broadcast TV in about two years. I’d like to say it’s ushered in a new era of unprecedented productivity in my life, but really, I just waste more time on the Internet now.

I can still get most shows I want online, for free, but in practice I don’t bother. Guess I’m too lazy for TV now. How is that even possible?!

djo2

It’s been almost 2 years since we cut the cord. (Our “cord” was DirecTV.) I find it difficult to imagine ever going back.

I’m surprised that none of the other commenters are using their Macs as DVRs. We use an OTA HD antenna with an EyeTV tuner/software bundle running on a Mac Mini. The bulk of the rest of our entertainment comes on a PS3 (Bluray, DVD, and Netflix). With Remote Buddy on the Mac, the PS3 IR adapter, and a little fiddling, I was able to get everything working with one remote, and we have more than enough content to ensure we are never without passive visual stimulation.

We decided it was only worth paying for Daily Show and Colbert Report from iTunes. Cost being equal, it’s true that there are several shows we’d rather watch when they’re aired instead of waiting for up to a year. But it’s just TV, and we’ve discovered that it’s really not that tough to wait.

Total one-time cost of all hardware/software is probably in the $1000 - $1500 range, but I’d guess most readers here have a fair chunk of that in the house already. Recurring costs are now ~$40/month (iTunes plus Netflix) down from over $80/month (DirecTV plus Netflix). Our annual savings on recurring expenses is close to $500 (and we had non-premium, non-HD, non-DVR service). If you’re already paying for premium channels, HD, and/or DVR from cable or satellite companies, you could easily save $1000/year.

Even if we counted the cost of the PS3 and Mini (both of which we had before cutting the cord), we’ll break even by the 2.5 year point. For people with monthly bills of $100 and up, the break-even point would be about 1 year.

Randy Heinzman

all the numbers change for the majority of people when you attach an antenna to your set, pull the commercial free over the air and use apple tv to supplement -

Tom M

I cut the cord 2 years ago, I’m very, very happy.. I started looking for upgrades to my hardware a few months ago and came across WhiteHatt. I’ve compared all the companies, and NONE of them meet my needs to cut the cord except WhiteHatt. Check it out I hope it helps.. http://whitehatt.com/cut-the-cable-cord/

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