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Friday
Feb172012

Podcast #518: Cord Cutting - A Financial Analysis

Cord cutting has been in the news quite a bit lately. A week doesn’t go by when we don’t receive an email from a listener telling us about how they have cut the cord and couldn’t be happier. Every email prompts us to consider a life without cable bills but inevitably there is something that keeps us from taking the plunge. A recent email from Van in Odenton Maryland got us thinking. Could we combine OTA with a Tivo Box and iTunes and a AppleTV and essentially eliminate our Pay TV bill altogether? For this paper study we will use Ara’s TV usage as the base.

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Cord Cutting - A Financial Analysis

Cord cutting has been in the news quite a bit lately.  A week doesn’t go by when we don’t receive an email from a listener telling us about how they have cut the cord and couldn’t be happier. Every email prompts us to consider a life without cable bills but inevitably there is something that keeps us from taking the plunge. A recent email from Van in Odenton Maryland got us thinking. Could we combine OTA with a Tivo Box and iTunes and a AppleTV and essentially eliminate our Pay TV bill altogether? For this paper study we will use Ara’s TV usage as the base.

The bulk of what is watched in the Derderian household are the broadcast networks which can be made up via OTA with no issues at all. Its the cable shows and Sunday Ticket that pose the real problem.  Pay movie channels are nice but with Netflix and a deep video server library, there is seldom a lack of things available to watch moviewise. We’ll begin the study with outlining the current cost and capability followed by the replacement solution and finally what if anything has to be given up.

Current Cost for Programming

Ara subscribes to DirecTV Premier Package including locals. The Premier package includes just about every channel including pay channel that DirecTV has to offer. The total cost is $114, but its the fees and add ons that kill you! Check out the itemized list:

  • Monthly Fee for the Premier Package $114
  • Protection Plan $6.00
  • HD Extra Pack $5.00
  • HD Access $10.00
  • DVR Service $7.00
  • Whole Home DVR $3.00
  • Additional Receiver $6.00
  • Leased Receiver $6.00

 

Total cost $157 a month plus Taxes. Ara also subscribes to Sunday Ticket which adds an additional $300 a year or $25 more per month. So the base we have to work with is roughly $185 a month. An advantage that using DirecTV or other provider is that you don’t have to buy your equipment and if something goes wrong the provider will fix it for you

Tivo

Part of the solution is a Tivo box that can act as a DVR. Tivo comes with a monthly fee but its a far cry from what you pay at DirecTV. Our solution will use the Tivo Premier which goes for $99 and we’ll connect it to the antenna on the roof. We will have to buy three of them so our cost start up cost will be just about $300 plus tax. In addition to the purchase price Tivo will require $20 a month service fee and since we have three boxes it will cost us $60 a month. We have confirmed with Tivo that you get a discount for additional units. Total monthly for three Tivo boxes will run you $50 ($20 + $15 + $15). 

The reason we are choosing Tivo over a basic DVR is that the recording features of the Tivo are quite nice and we have become accustomed to setting season passes and all the other cool features of a modern DVR. Tivo also offers connections to Netflix, Hulu+, Amazon, and Blockbuster so for most people you can stop right there and be quite happy!

AppleTV

AppleTV will be our means of getting cable content that we lose by cutting the cord. Many shows are available in iTunes the day after they air on cable. These shows are in HD and 5.1 audio. The quality is quite good. If you can wait a season, many, but not all, shows end up on Netflix or Amazon so you may not need this option. The AppleTV will run you $99 a piece and we’ll need three of these as well. Like the Tivo we are up to $300 plus tax. For the Derderian’s the season passes that we’ll have to buy are the following:

  • Covert Affairs - $40
  • Burn Notice - $38
  • Sons of Guns - $25
  • American Guns - $24
  • various shows on ABC Family for the kids - $200
  • Budget of another $200 for single episodes or new series not yet discovered.

 

Total cost for non OTA programming $527.

Now let’s add a budget for movies. We’ll allow 2 HD rentals at $5 and one purchases at $20.

Cost

Let’s add it up and see what it will cost us!

  • Hardware (One time Cost)  - Let’s say $650 after you consider tax and incidentals
  • Content
    • Season Passes and individual shows on iTunes $527
    • Movie rentals/Purchase $30 ($360 for the year)
    • Tivo Service $60 ($720 for the year) Tivo Service $50 ($600 for the year)

Total content cost for the year - $1607 $1487
Total cost for DirecTV without Sunday Ticket - $1884
Savings $277 ($577 without Sunday Ticket) Savings $397 ($697 without Sunday Ticket)

In actuality your savings may be more. If you don’t rent or buy movies from iTunes and if you buy a generic OTA DVR without the niceties of the Tivo you can save over a Thousand dollars. In the Derderian scenario we have three DVRs but if you only have one or two you can save quite a bit of money. Finally, this plan requires you to pay upfront for the equipment. In the Derderian’s situation, breakeven would be in just over one year.

What do you give up?

In the Derderian case you give up Sunday ticket. That means about seven or eight less Chicago Bears football games a year. They also give up Food Network and the joy of discovering a program simply by flipping through channels. While this isn’t a big deal for us there have been some Saturdays where this was the only option. Maybe it will free me up to do other things like create more content for the show!

Conclusion

Cutting the cord is probably a great thing for most people out there. Whatever is being missed on the cable channels can be found through Amazon, Netflix, or iTunes so you really don’t have to do without. Live content like news and sports can be found via the old fashion airwaves in better quality than what you would get on cable so there is no loss there at all. The only drawback is that there is an initial outlay of cash that may take a year or two to payback. With all that said, Ara is not ready to cut the cord. He is ready to talk to DirecTV about his bill however! We’ll revisit the analysis in a year or so.

 

 

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Reader Comments (15)

A few parts of this analysis are incorrect. The first Tivo unit is $20/month, each additional units in the same household are $15/month. A whole year is $240 for the first Tivo, and lifetime is $400. (Additional lifetimes are $300).

So, Pay $300 for the Tivos, $400 + $300 + $300 = $1,000 for lifetime on all the units, and now you paid $1300 the first year, and each additional year is free. This is what I did back in 2009.

Get an Apple TV unit, and a netflix streaming account (best experience of Netflix is on the Apple TV that I've found). My entire monthly fee is only $7.95 for the Netflix account. Additionally, all my purchased DVDs can be copied to iTunes and streamed to my Apple TV - no more DVDs! Except new ones from the library - which are free. (Or redbox for $1 if the library doesn't have them)

This is a lot cheaper than the DirecTV solution. (I had DirecTV from 1999 to 2009).

February 17, 2012 | Unregistered CommenterBrandon

Remember with DirecTV you are locked into a 2 year subscription. I also found that when a defective receiver was replaced under their Protection Plan they tried to restart the 2 year plan at that date. This is what made us change to U-verse, however, we miss the stability of the picture on DirecTV but enjoy needing only one DVR for the whole house. I understand that the same feature on DirecTV is restricted to 2 sets for the monthly $3 fee.

February 17, 2012 | Unregistered CommenterDavid

One should also add the monthly high speed internet cost. At the moment we pay $60/month for high speed internet and $18/month gets her 1 BD/DVD out at a time and streaming from Netflix. Add in 1 - 2 BDdvd's from my local video store per month because of the Netflix delay on new releases. Rental cost is $3.30 per (out on Saturday return by Tuesday 6:00pm) after 10 rentals the 11th is free. Plus the odd 1-2 /month on demand from Amazon. I figure we are under $90/month for content. For my wife and I who cut the cable tv cord 3 years this April @ $120/month savings times 36 month only adds up to $4320 and counting. We figured out that we saved about $100/month in cable TV subscription services and equipment rental. Add in the cost for electricity (2 HD DVR's cost us about $20/ month based on local electrical rates.
http://news.cnet.com/8301-31021_3-20071139-260/study-dvr-set-top-box-use-most-energy-at-home/

Cutting the cord also makes you realize how much junk you used to watch and you become much more selective on what you watch. Just my opinion....Now go outside and do something....

February 17, 2012 | Unregistered CommenterMike S.

HT Guys,

Thanks for this podcast. My wife and I did this same analysis a couple months ago have decided to go the Mac Mini/HD Home run route. With all this iTV talk lately, I'm waiting until the next Mac Mini refresh this spring/summer to take advantage of the increased hardware specs to hopefully be able to use any new iTV/AppleTV features coming down the pike. We pay ~$1050 a year for DirecTV and the upfront expense of the new mac mini equipment (mac mini, HDHomerun, keyboard, trackpad, antenna, and new AppleTV) will be ~$1000. So, my break-even will be 1 year and then we will be saving ~$100 a month! The only downside will be that I'll desperately miss watching Formula One on Speed... very tough for me!

Thanks again!
John Langevin

February 17, 2012 | Unregistered CommenterJohn Langevin

TiVo: I purchased two premiere TiVo units, added lifetime, and calculated appx. 2.5 to 3 yrs for the break-even point vs. monthly payments. For people who can front the cost, this is the way to go to maximize savings. FYI, TiVo's current interface for Netflix, Amazon, etc. . . . is lukewarm at best. There are some hints that updates for the interface may appear sometime in the next year.

OTA: see tvfool.com for what you can receive. The antenna connects to the TiVo unit directly. The current TiVo (the premiere, sometimes called the Series 4 or S4) unit has a reputation for some challenges w/ marginal signals (folks w/ both the previous S3 unit and the current S4 unit report that marginal stations that the S3 could bring don't work on the S4). For folks close to broadcast towers, this won't be a significant issue. Folks considering OTA should think hard about antennas. Settop, attic, rooftop fixed, rooftop with rotator -- escalating cost, complexity, and effectiveness. TV fool will make general suggestions for the type of antenna required to recieve various stations. Some people may not love the aesthetics of a settop antenna, some may feel the same way about rooftop, attic may not work well. Sites such http://www.hdtvantennalabs.com/forum/antennas-f3.html are really helpful. I found that installation of a fixed rooftop antenna was not cheap or simple, even as a DIY project. I invested a lot of time in understanding the requirements for grounding, devising a weather resistant installation method, selecting an antenna, selecting a mast (this was not cheap), and then about a day and a half to install the mast, install the antenna, install the wires (coax plus grounding), etc... This doesn't include indoor wiring. Vendors like solidsignal.com and summitsource.com were helpful. There are a number of tools required to install the antenna wires also (coax cutter, termination tools, etc...). I am happy w/ the result, but it was a lot of effort.

February 17, 2012 | Unregistered Commentere identity

A HTPC with a tuner or 3 saves you on the monthly Tivo fee and gets rid of the need for the AppleTV. Another enjoyable podcast guys!

February 19, 2012 | Unregistered CommenterNick

The only problem with iTunes for renting of TV shows is the fact that you have to outlay the $25-$45 per season pass ... now imagine doing that for 10-15 shows! On a cash-flow level, that won't work out too well.

Here in South Africa, there is no legal way to cut the cord - unless you spend your hard earned cash on DVD box sets of TV shows or rent the very few they have at the video store.

People that I know who have cut the cord or never even had the cord to cut in the first place, don't get their content the legal way at all.

In the US, you can cut the cord very easily and be legal because the network shows are FREE where here you have to pay your satellite provider to get content that is broadcast free in the USA, not to mention that you are guaranteed of seeing the shows before the rest of the world does.

It is very possible to cut the cord in other countries, but you are definately going to find yourself on the wrong side of the copyright law. Sad reality,.

February 20, 2012 | Unregistered CommenterGlen

I don't think a lot of people understand the Apple TV. The main reason for the Apple TV for us was not Netflix (although we use it for that), but the ability to stream movies we copied to our PC. (Legally - we own the DVDs). If it was JUST netflix, we could have used the Tivo's implementation of Netflix (which sucks), or a DVD player's version, or a Roku box, or something.

Our daughter loves to watch Disney movies over and over again. We don't have to worry about DVD scratches, or the time it takes to switch discs, and fidget through the menus (sometimes 2-3 minutes just to get the movie to start). Now it's all there on the Apple TV, and starts in seconds.

We could have hooked up 3 PCs directly to the 3 TVs, but that's costly, and I would have to copy each movie to each PC, which is time-consuming. With the Apple TV solution, we can have 1 PC in the basement as a server, and 3 Apple TVs in the house. Now we can just stream the movies easily with 1 copy of the movie, and the interface is easy to use.

We now have hundreds of movies that we can access with the click of a button without having to worry about previews, getting up to change discs, and it's so much quicker.

February 20, 2012 | Unregistered CommenterBrandon

I use a Windows 7 Media Center PC with a tuner card and a Ceton Cablecard tuner in it. I get my basic cable for about $12/month because I pay for broadband internet with them. I told them I needed the cable card ($2.50/month) for the Ceton so the channels mapped to their correct channels for recording (in other words, I get a LOT of their digital QAM channels that are broadcast for FREE on their cable line, yet they would charge people for in the basic digital packages if you rented a box from them, as well as all the OTA HD networks). I also use 3 XBOX 360's as Media Center Extenders in my other rooms to watch all the recorded content and live TV through the media center pc. I also get NetFlix, Vudu, CinemaNow, Hulu+, the NFL Sunday Ticket and all other major sports through my 2 PS3's.

So basically I went from having DirecTV for about $185/month (same as original poster) plus annual Sunday Ticket for $350 AND then also paid for broadband internet from TWC for $52/month. I now pay about $82/month to TWC, $8 for NetFlix and $8 to Hulu plus $300 for NFL ST on PS3. Quite a BIG savings for me overall.

February 20, 2012 | Unregistered CommenterDave

Speaking of VCRs, I dragged my old JVC hi-fi VCR out of the attic to archive some old 8mm home video to digital and it went into tape-eating mode. Fortunately nothing irreplaceable was lost but I did have to go looking for a new VCR! Wow I can't tell you how much I did NOT want to buy a another VCR! I found out that there are almost no standalone VCRs anymore...nowadays you typically find DVD/VCR combo decks. I ended up with a Phillips DVP3345VB for about $70. That price is pretty amazing considering it is a 4-head deck with a DVD player, although listeners to this program would be as astonished as I was to read about this feature: " Its progressive scan feature allows you to start a movie where you left off, no matter how long ago you paused it." Say what?

Re: Amazon Prime. I signed up my parents as guest users but it only allows them to use the free 2-day shipping. They are specifically excluded from being able to link their Roku to watch Amazon Instant Videos.

My Sam's Club acoustic panels arrived today. I am impressed! They look good and are very lightweight...I think I can even stick them on the ceiling with Velcro. The little metal labels are just stuck on with light adhesive so they can be easily removed if you don't want them (like me).

February 21, 2012 | Unregistered CommenterHenry

I'm not sure I understand the math on this post. You said your upfront cost is $650 and you're saving annually about $277. By my math, that's a 2.3 year payoff. Yet you said you break even in a year. What am I missing?

You ought to consider getting lifetime TiVo subscriptions. The first one is $500. Then each successive lifetime is a $100 discount. For 3 TiVo's that's an additional $1300 in upfront costs ($500 + $400 + $400). But it saves you $50/mo ($600/year). So instead of the breakeven being 2.3 years, it's 1.9 years. (I'm assuming the payoff that I know how to figure out rather than your 1 year calculation.)

Put another way, assume that you're TiVo's all last 4 years - which in my experience is very conservative. What's the total cost of ownership over that time? With monthly subscriptions 3 TiVo's cost $300 + (48 * $50/mo) = $2700. With lifetime, those same 3 TiVo's cost $300 + $1300 = $1600, saving you $1100. Add $600 in savings for every additional year you think your TiVos will last.

Even if you don't plan on keeping the TiVo's until the breakeven point, that lifetime subscription is worth something in the resale market. Put another way, buying a lifetime subscription allows you to put equity into your TiVo that paying monthly does not.

Lifetime subscriptions really are a good deal. $0.02

February 21, 2012 | Unregistered Commenterdullgeek

I cut the cord with two HDHomeRun Dual network tuners for a total of four available OTA tuners in the house. Coupled with an OTA tuner in two HDTVs that's six tuners available, four of which can be used simultaneously to record in Win7 Media Center and/or watch live. I have an HTPC for my HT front projection setup, which feeds Media Center Extenders on two Xbox 360s, plus we have two Rokus connected to the HDTVs. I watch recorded OTA HDTV, Netflix, Amazon Instant, some Vudu, and some Zune. I watch a lot of internet TV (mainly revision3.com) using the outstanding Kylo TV-optimized browser. Best thing about Kylo is the aggregated internet TV content home page. I can't imagine buying Tivos or paying the thousands of dollars for Tivo subscriptions that people are talking about here. You can make a decent Core i3 media PC for $400 and just use Media Center as yout DVR solution. It has a great guide and a lot of recording flexibility. Plus, it's a full-tilt PC that you can use as a PC when you want to. Plus a PC can reliably stream backed-up DVD and Blu-ray files locally or from a NAS.

February 21, 2012 | Unregistered CommenterHenry

Hi dullgeek (mark@hornclan.com),

I also included the $300 a year I pay for Sunday Ticket. Since I can't buy that package anywhere else I banked the cash.

Ara

February 22, 2012 | Registered CommenterHT Guys

Having just listened to the show I'm still staggered to how much you pay per month for TV!!

February 23, 2012 | Unregistered CommenterDanno

Great podcast! As I was listening to it, a kept waiting to hear about the lack of ESPN. I don't know about California, but in the Southeast (I'm in Georgia), I rely on ESPN for college football and basketball coverage. I would love to cut the cord, but I can't do without ESPN.

I have a HD Homerun Prime and two extenders that I can use to broadcast through the house with Media Center. I also have Netflix. If I added Hulu/Plus, I think I would be pretty much set, except for ESPN. I thought I was going to have it covered by just having Xfinity broadband, but I just found out that cable is needed to see WatchESPN or ESPN3.

Any ideas?

February 28, 2012 | Unregistered CommenterErik

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