Cord-cutting: 6 things to know about dropping pay-TV

Consumers are increasingly saying goodbye to their cable and satellite-TV subscriptions and saying hello to their internet-based rivals. It's not only the desire to save money, but to avoid what many view as poor service from pay-TV operators. 

The cord-cutting trend has weighed down the share prices of some media companies, thanks to the loss of customers who typically pay upwards of $100 per month for pay-TV service. However, a cord-cutting consumer isn't necessarily ending their relationship with a pay-TV provider, because those same companies also provide broadband service.

Here are six things to know about this trend.

What is a cord cutter?  

'The term is loosely defined as anyone who cancels service from their pay-TV provider. There are also "cord shavers," which are people who cut back on their pay TV services, and "cord nevers," or people who have never have had a pay-TV service.

Where things get tricky is when a consumer drops the traditional pay-TV service in favor of an internet-delivered service from one of those same providers, such as AT&T's DirecTV Now and Dish Network's Sling TV. Some experts count them as cord-cutters while others don't.

"In many ways, the changes are much more about viewership and corporate strategies than they are about subscribers (and overall spending on pay-TV)," said Bruce Leichtman of Leichtman Research Group in an email.

How many people have cut the cord? 

Though analysts may define the term differently, they agree that their ranks are growing and that traditional pay-TV service is on the decline. The vast majority of consumers, however, haven't taken the leap.

Data from research firm MoffettNathanson shows that as of the most recent quarter, there were more than 90 million subscribers to cable, telecommunications and satellite services. So-called "virtual multichannel video distributors" including Sling TV and DirecTV Now, have about 5 million customers, the firm says.   

Why the alarm?

Since the pay-TV industry's peak in the first quarter of 2012, traditional service providers have lost more than 7 million customers while internet-delivered offerings have gained more than 3.7 million, according to Leichtman Research Group. 

The ranks of cord-cutters are likely to continue to grow. Almost 8 percent of pay-TV subscribers said they're "extremely likely" to cancel their service in the next year, compared with about 6 percent in 2017, according to 
a recent survey released by Frank N. Magid Associates. Meanwhile, 14 percent of millennials say they plan to do so.

How much money can a consumer save? 

As Consumer Reports and other personal finance sites have noted, the amount of money consumers can save on their video entertainment bill can vary widely. For instance, people who only are interested in a handful of channels can rely on an old-fashioned antennae and add about $75 per month for phone and broadband service, which will allow them to stream YouTube and tune into over-the-air TV.

People with more expansive viewing interests can shell out as much as $172 per month after adding in paid streaming services like Netflix and HBO Now, according to the magazine.

Cord cutters oftentimes will use multiple services to replicate their pay-TV service. Those fees can quickly add up. 

About 7 out of 10 cord-cutters pay for a video-on-demand service like Netflix or Hulu, according to Leichtman Research Group. And out of those, about 60 percent pay for at least two streaming services. 

What about broadband?

Consumers sometimes forget about the cost of broadband. On average, consumers pay $60 a month for high-speed internet access, which is often bundled with video, phone, and other services, according to Leichtman. 

Consumers may need to get a faster connection, which can boost up monthly expenses, in order to stream HD video across multiple devices, according to Brett Sappington, director of research at Parks Associates. "You simply can't go with the lowest-cost connection," he said in an interview.

Why do consumers keep pay-TV?  

More than three-quarters of cable subscribers were also customers of a streaming service, according to video management platform Telaria. It found that four out of 10 cable users mistakenly believe they need cable to watch live events such as sports. Another 55 percent said they found non-traditional TV options to be "confusing."

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.