Cutting the Cord: Fissures in the pay TV 'logjam'

Cord cutters should be feeling upbeat and vindicated. But don't start running those victory laps just yet.

Over the past week, video powerhouses HBO and CBS made moves to attract cord cutters, cord nevers who don't plan to sign up for pay TV and others who might be thinking of dropping or scaling back theirs.

CBS' new All Access service came as the biggest surprise because it is up and running now — on the Web at CBS.com and on Android and Apple devices — with a robust catalog of new and recent episodes of current series such as the Late Show with David Letterman and The Good Wife and a library of more than 5,000 ad-free episodes including all of the Star Trek series, The Andy Griffith Show and more recent shows such as Survivor.

You don't need a pay TV subscription to use the service — currently offering a one-week free trial — but you will pay a $5.99 monthly fee.

HBO offered few details on its service except that it will arrive early next year and requires a monthly fee, too.

You can bet these won't be the last developments in over-the-top TV. "We have broken the logjam," said Joel Espelien of tech research and consulting firm The Diffusion Group. "We are going to see the pace of change accelerate from here on out. ... We know there is a herd mentality in this industry, so when you get companies like (HBO parent) Time Warner and CBS moving toward this, you can expect movement from the rest of the pack."

Consumers have already spoken, as more than half (55%) of U.S. broadband households currently subscribe to a streaming TV service, according to Parks Associates. At the same time, the percentage of TV homes with pay-TV service is slowly dropping — projected by tech research firm IHS as 84% this year and 81% in 2017.

As these two deals emerged in less than 24 hours, I began to wonder whether cord cutters might want to be careful what they wish for. If there's a deluge of services, they might find themselves paying nearly as much as pay TV subscribers do now.

"If you have got to start trying to piecemeal your programming package, here's an HBO, here's a CBS, here's a Netflix or Hulu or Amazon and all the rest, that gets to be expensive in itself," said Phil Swann, publisher of TVPredictions.com, when I broached that idea with him.

"Is the point of it all to save money?" he said. "If that's the case, if you are putting together a programming package of channels that are really important to you, you might end up paying pretty much what you have been paying before."

It remains to be seen whether consumers will flock to these services, as each have weaknesses. CBS All Access, for instance, does not let you watch NFL games as part of its live-streaming features. (For now, the service lets you watch live local CBS broadcasts in 14 of the largest U.S. markets, including New York, Los Angeles, Chicago, Philadelphia, Dallas and San Francisco. That footprint covers about 35% of U.S. viewers, says CBS, which plans to add more in the near future.)

And HBO's pricing, expected to be more than that of Netflix could be a detractor. These recent developments do not break down the pay TV wall, Swann says, "it's just putting cracks in it. The question is: 'Will more companies come along and put more cracks in it and the wall eventually will come down.' "

Last week, Espelien's colleague at The Diffusion Group, Michael Greeson, published a note about the prospects for an over-the-top HBO subscription service aimed at "pay TV refugees."

He found that only 6.4% of "pay TV refugees" were legitimate candidates for a $15 monthly HBO service, with another 9.2% slightly interested. "The No. 1 reason these consumers do without pay TV is price," Greeson says. "If HBO doesn't come in at a significantly lower price, and without watering down the service, their addressable market will be much less than they perceive."

As Net TV evolves, it looks like consumers and content providers alike are going to have to make some tough decisions.

"Cutting the Cord" is a new regular column covering Net TV and ways to get it. If you have suggestions or questions, contact Mike Snider via e-mail. And follow him on Twitter: @MikeSnider.