Aereo shows that cord cutting has a long way to go

Samantha BookmanWhat's a cord-cutter's viewing experience like? I recently had the chance to sign up for Aereo when the service launched in late August in the Boston area. With online video streaming equipment in place on all of my TV sets and devices, and subscriptions to a few OTT services already in place, a service streaming local broadcast signals from a leased antenna seemed like the icing on the online video cake.

After a month or so as an Aereo subscriber, though, I'm not so sure it's the ultimate pay TV killer.

Aereo is certainly a major marketplace disrupter. It's attractive because it presents an affordable alternative to basic cable service, and in some cases--like mine, since moving to a different part of the city--it provides better reception than an HD antenna. But it's not yet the perfect solution to the dilemma of receiving a quality linear television signal at minimum cost. A number of minor factors keep it behind most cable and satellite operators when it comes to lean-back viewing enjoyment.

Subscribing to Aereo is fairly painless, accomplished through a PC or tablet (iOS only at the moment). Up to five devices can be enabled at one time, and swapping enabled devices is fairly simple. I found that my Aereo account switched the primary device, however, each time I added a new one, rather than just leaving the original primary device selected. While annoying, it didn't cause major issues on my second-screen devices (PC, smartphone or tablet).

Usability leaves room for improvement. The interface--via Roku, primarily--is easy to navigate. There's a slight lag after making a program choice as the video feed is buffered. And there's a slight lag of a couple-few seconds between the over-the-air signal and the OTT feed, which is not unexpected. I found that programs likely to have high viewer numbers, like the Patriots game this weekend, tend to buffer much more frequently, which is annoying. Aereo's settings panel has an "Auto" feature that lowers the streaming bitrate when it detects an issue. For live sports, this significantly degrades the picture--football players' jerseys were trailing colors behind them as the feed struggled to keep up. Additionally, while the quality of the signal streaming over Wi-Fi to my iPhone was very good, the quality over an HD TV is not as crisp as an HD picture sent over the air.

Most annoying is that, on Roku, once a program ends the feed stops and reverts back to the program selection menu. It makes sense if you're not paying attention to a program and don't care if the feed stops, but if you're watching the morning news and the time code signals that it's time to stop the feed, you have to wait for the menu to display the current listings and reselect the program. With a lag of about 10 seconds between program end and a menu update, and another 10 seconds to start the next program segment--that's a significant delay in the broadcast world.

PwC consumer survey a la carte

Amount consumers are willing to pay per channel for customized services (Source: PwC)

And it's really a shame that legal and regulatory issues prevent Aereo from allowing the broadcast signal to stream outside its designated broadcast area. I watched with a bit of jealousy at the recent IBC 2013 tradeshow in Amsterdam as Sling reps demonstrated their product's ability to stream U.S. programs available via Dish Network (Nasdaq: DISH) subscription across international borders.

One of the benefits of an Aereo subscription is that for $8 per month, subscribers also have access to remote DVR services with 20 hours of recording time. They can up that to $12 a month for an additional tuner and 60 hours of recording time.

That's a fairly competitive price, either as a cable alternative or an add-on to existing online video services. However, cord-cutters increasingly are running into a problem of dollar creep--something Aereo only exacerbates.

Most online video viewers already subscribe to Netflix (Nasdaq: NFLX)--there's $9 more per month. Some leverage their Amazon Prime (Nasdaq: AMZN) subscription to view Prime Instant videos at no additional cost--breaking down the $79 annual fee, that's about $6.58 per month. Others purchase Hulu Plus--there's another $8 per month. If they add a Redbox subscription, there's another $6 to $8 per month. And these don't count additional costs, like renting or purchasing a movie through Amazon Prime.

Why bother with it then? Aereo, like other online video services, provides one thing cord cutters love--the a la carte option they can't get from their cable company.

A recent PricewaterhouseCoopers report found that 73 percent of the consumers it surveyed "would prefer to customize their package, picking and choosing the channels that suit their individual interests." Part of the reason for their choice was that they felt they could save money by eliminating channels they don't want. PwC also found that premium sports channels aren't too popular, noting that only 29 percent of consumers surveyed said they would pay for the channels.

While the math (or at least, my quick, non-mathematics major calculation) doesn't favor any cost savings for cord cutters at this point, the PwC report should be ringing alarms in pay TV providers' home offices. But cable operators are staunchly resistant to any conversation about the dreaded a la carte option. Viacom (NYSE: VIA) CEO Philippe Dauman told investors recently that a la carte was not good for consumers and that they could get everything they need in a bundled TV service package.

In terms of value, that's fine. But consumers are signaling, very loudly, that choice is just as important to them. They don't mind saving money, but if it costs only a few dollars more to have exactly the programs they want, they will pay it. I'm not sure why cable operators are fighting so hard against this trend.

Cable operators are still in a great spot to capture and capitalize on the best innovations in IP-based video delivery. As the PwC report pointed out, the majority of its respondents, 70 percent, subscribe to traditional pay-TV services. But many of them want greater choice. Right now, services like Aereo and Netflix are providing a greater breadth of programming choices and a deeper well of content at very competitive rates--enough to put up with a few programming glitches that would be unacceptable from traditional pay TV providers. So while operators wrack their brains to come up with new ways to sue the pants off of Aereo, they really should be devoting a good portion of that effort to figuring out how to offer a similar level of choice and control to their current subscribers.--Sam