Cutting the cable cord is harder than it looks

One of the big topics at this month's CES show in Las Vegas was customers dropping their cable or satellite subscriptions, as they previously dropped their telephone lines. But this redistribution of wealth business is trickier than I thought.

One of the big topics at this month's CES show in Las Vegas was "cord cutting" -- customers dropping their cable or satellite subscriptions, as they previously dropped their telephone lines.

I have been without a wired telephone connection for five years now. Everyone in the family now has their own phone, which they keep with them.

But while this cord cutting has made life more convenient it hasn't grown cheaper.

I pay about $150/month, which is just about what I previously paid for my wireline phone and long distance calls. It's also less convenient -- I have to fire up my Netbook and Google Talk if I want to communicate outside the country.

The cost improvement of cutting the cord, in other words, can be marginal.

Michael Greeson of The Diffusion Group thinks it may work out the same way with pay television. Both sides will lose.

Cable TV operators certainly think so. Their name for people who cut their cable service and get all their video over the Internet is parasites. (The image above is from StoptheCap, which argues against usage caps on broadband service, one way cable giants are trying to cope.)

You have to get your Internet from somewhere. If you want video and other high-bandwidth services you need a wired connection. You're no longer dealing with the phone company, so chances are your cable operator is also your Internet Service Provider.

Comcast knows this. It's why it bought NBC. It has seen how broadband Internet service can be "tiered" -- it's already doing it.

ISPs buy ESPN360, and add it to their customer bills. I didn't ask for it. In theory it's a good thing -- lots of sports streaming into my home, many games I can't get otherwise. But it's also an opening wedge in the next big battle for control of your "pipe."

If ESPN can get that deal, why not NBC? Especially if NBC and the cable company are the same outfit? So now you've got a second charge, for unlimited access to Hulu. Now Time Warner and Comcast make a cross-licensing deal, and you've got a third charge, for accessing Time Warner's content. Wash, rinse, repeat. Viacom, Fox, Scripps-Howard.

Pretty soon your broadband bill is $150/month, same as before, and Comcast retains the same power over you it has as your cable provider. Prices are determined by negotiations between Comcast and program providers, and Comcast is sitting on both sides of the table.

That's one vision, and in some ways it's not bad. As James Surowiecki wrote recently at the New Yorker, bundling can be a bargain. If you tried a la carte pricing on cable television, chances are your bill would go up, not down, because each channel would be charging you retail, not the bundled price they give the cable operator.

This is not a rip-off. Selling retail means paying transaction fees. It means marketing. It means developing a personal relationship with each customer, and getting the cash invested out on that relationship. HBO costs about $12/month. FoodTV probably wouldn't cost much less, if it had to find customers one-by-one. And video costs money to produce, more money than ads can ever provide if the business is to grow.

This redistribution of wealth business is trickier than I thought.

This post was originally published on Smartplanet.com