So what’s the real cost to cable companies when customers ditch their video service and go broadband-only?
MoffettNathanson analyst Craig Moffett did some fancy mathematical modeling of No. 1 operator Comcast and concluded that the company would lose $5.50 in monthly revenue for each Xfinity video customer who forsook their pay-TV service for an OTT alternative but kept—and even upgraded—their broadband.
Notable are bundling discounts that not only incentivize customers to buy both video and internet but also protect the MSO in the event customers go broadband-only.
“The protection that these mechanisms provide against cord-cutting are dramatic,” Moffett concluded.
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When a Comcast customer drops video, the MSO loses about $38 in contribution margin, Moffett estimates. But that customer ends up paying an extra $25 a month more for broadband when their bundling discount goes away.
“Now, further suppose that half of those customers opt to upgrade to a higher speed tier at an average premium of $15 per month (implying a probability-weighted $7.50 benefit per cord-cutter)."
The difference comes to $5.50.
So how does Moffett determine that half of users would upgrade their service if they went all-OTT?
The analyst commissioned research firm Survata to conduct a consumer survey. It found that 49% of U.S. consumers polled said they’d be willing to upgrade their internet service if they dropped pay TV for over-the-top video.
“It is clear that there is at least some potential for a meaningful offset to cord-cutting from getting customers to upgrade to higher speeds, particularly if they're given a marketing push to do so,” wrote study author Craig Moffett, glass half-full.
“Our survey found a reasonably robust willingness to pay for higher speeds in order to stream video, particularly among those contemplating cutting the cord,” he added.