Rough cut: The growing cost of going all-OTT

Cost of cord cuttingBy Samantha Bookman

How much does it cost for a consumer to cut the cord? How much does it cost to maintain a cord-cutter lifestyle? And can OTT providers attract viewers who are increasingly swayed by the promise of all the video they can binge on?

Cord cutters have traditionally cited cost as a factor for cancelling their pay-TV subscriptions, saying that they can get all the entertainment they want, on their schedule, for a fraction of the cost. But cost savings may soon become a thing of the past, if they aren't already.

Convenience, on the other hand, is rising in importance. It's a "baseline requirement of (online video) technology" according to analyst Howard Horowitz. And potential cord cutters increasingly have more high-quality streaming options available to choose from.

The FierceOnlineVideo chart below summarizes the amount consumers could pay to get an online viewing experience similar to the services they get from pay-TV operators today.

FierceOnlineVideo Going OTT

As you can see, the chart is broken down into three payment options--from consumers who want to save as much money as possible, to those willing to spend much more. Items on the list are also ranked by how important they are for cord-cutters, and can be effectively split into "need to have" versus "nice to have."

Need to have...

A broadband connection of at least 4 Mbps is an absolute must-have in order to stream video effectively without losing your mind waiting for the video to buffer. In our chart we set broadband prices at the U.S. median cost for just over 16 Mbps, as reported by Ookla's household value index--part of its rolling 30-day Net Index. Ookla pegs the most recent average price for broadband in the U.S. at $3.51 per Mbps, with a mean broadband subscription cost of $56.40 per month.

The chart assumes viewers already have a television. But they'll need a device to stream online video to that set. Consumers have a number of options for streaming devices, from game consoles like Microsoft's Xbox One to hybrid DVRs (more on that below), but the best performance, Streaming Media noted in a live product review last year, can be found on dedicated streaming devices like the Roku, Apple TV or Amazon Fire TV. These retail between $49 and $99. Google's Chromecast offers added functionality, particularly the ability to "cast" video from, for example, a laptop to a television, and is the lowest-priced streaming device at $35.

Netflix prices are based on its standard plan of $8.99 per month, which allows users to watch on a maximum of two screens at once. Its $11.99 plan allows users to watch on four screens at once and will include 4K/UHD streaming once its test period is complete.

But cord cutters cannot live by Netflix alone. Other SVOD services are available like Amazon Prime Instant Video ($99 a year) and Hulu Plus ($8 monthly), but those who worry about suffering withdrawal pangs from linear TV and its sweet, sweet commercials have a couple of low-cost options. 

Viewers who want to pick up the local news can either stream available news broadcasts from the affiliate's website on their desktop computers, or spring for an HD antenna to pick up those signals. The cost of an antenna can run as low as about $7 for an un-amplified indoor receiver to well over $100 for an amplified indoor-outdoor model.

There are also free, ad-supported online VOD services available as apps on streaming devices like Roku. Crackle, a Sony-owned VOD service, and Popcornflix sport a number of older movies and TV series and are available on a number of devices. (The ads tend to appear throughout the playback without much warning, which is a bit jarring). YouTube is also becoming a ubiquitous streaming app, availabe on most devices and smart TVs.

...Versus nice to have

If local broadcast channels and Netflix streaming aren't enough, Dish Network in February debuted Sling TV. For $20 a month, subscribers get a base package of 16 channels, including ESPN and popular cable networks. Add-on packages are available in $5 per month increments--currently there are three different packages to slap onto a Sling TV subscription, including Kids Extra, News & Info Extra, and Sports Extra--so viewers can pay up to $35 per month for this service. Subscribers also get at least one cable-like perk: they can authenticate on the separate Watch ESPN app using their Sling TV login credentials, giving sports fans a backup source should Sling TV's live stream falter.

Sling TV's multichannel appeal could have subscribers on the fence between seeing it as a need-to-have and a nice-to-have. "For $35-$45 you could have cable essentials, and Netflix, all in for $50-$60. That becomes interesting," Horowitz said. "That's the new wrinkle" in the OTT landscape, he added.

The big hole in Sling TV, however, is there are no local broadcast channels: no ABC, CBS, NBC or PBS stations are available on the service at the present time. That means defaulting back to the HD antenna to watch the local news.

Another nice-to-have: TiVo's recently launched Roamio over-the-air DVR. With it, you can record and play back TV programs received via your HD antenna. It also functions as a streaming device, with the Netflix, Amazon and Hulu apps standard. By adding a TiVo Mini for $150 viewers can watch recorded and streamed programming on additional TV sets in the house.

Not included in our chart are an increasing plethora of a la carte, or standalone offerings that can incrementally boost subscribers' OTT bills. The Wall Street Journal charts a few of these, such as CBS All-Access, a $5.99 per month streaming service, Noggin, a kids-focused SVOD service by Nickelodeon that also runs $5.99 per month, and a rumored comedy-only subscription service being planned by NBCUniversal that will cost between $2.50 and $3.50 per month.

Is it nice enough?

Will the increasing subscription options available to over-the-top consumers lead them to run from traditional pay-TV in droves? Most analysts say that's unlikely. Parks Associates last month tried to smooth concerns after releasing survey results that suggested 8 percent of U.S. consumers might discontinue their pay-TV subscriptions--blogging that consumers were likely venting their frustration with cable companies in their responses, rather than signaling a true intent to cancel.

While noting that about 10 percent of consumers currently have gone all-OTT, completely cutting the cord, Horowitz said that as much as 70 percent of consumers in the U.S. will stick with a multichannel package--subscribing to traditional pay-TV services as well as a few OTT services--"because they want it all."

Pay-TV providers and networks are also getting more competitive, upping their game in response to the surge in popularity of services like Netflix, Twitch, and YouTube-based multichannel networks. Verizon FiOS, for example, is offering a double play package that includes broadband, a "local TV" package, and optional HBO for $60 per month. It's just one of the slimmed-down packages that pay-TV providers are rolling out to keep consumers in the fold, even if they've got one foot in the OTT world.

Rough cut: The growing cost of going all-OTT