The debate is over: Cord-cutting is a real phenomenon. Last year, more than 250,000 U.S. households ditched cable -- the industry's first decline on an annual basis. Increasingly, consumers are finding that they can satisfy their entertainment needs online, choosing Web-based services like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) Prime Video in place of traditional cable and satellite packages.
Using these services in place of expensive cable plans can save households hundreds, perhaps thousands of dollars each and every year. If you're considering ditching cable, this is the guide you'll need.
Step 1: Decide if it's right for you
Unfortunately, cord-cutting isn't for everyone -- there are a few groups of people that won't find it feasible, and should likely stick with traditional paid-TV plans.
Consumers in rural areas, or those with poor Internet connections, will probably have a difficult time. Streaming a lot of Internet video requires a fairly speedy connection -- Netflix, for example, recommends a minimum connection speed of 5Mbps for HD video. Households with multiple TVs should have a connection several times faster. At the same, streaming a lot of video uses up a considerable amount of data -- if your Internet connection is capped, replacing cable with Internet video could easily put you over the monthly allotment.
Even if you have a fast, uncapped connection, you still might be beholden to the paid-TV industry. Netflix, Amazon, and other services have a lot of content, but there's plenty they're missing -- in particular, live sports.
Games shown on the major broadcast networks (ABC, NBC, Fox, CBS) will be available, meaning that you'll be able to watch many, if not most, of your local team's games. But a lack of ESPN, and other sports-focused cable networks, will severely limit the ability to watch out-of-town games (NHL and MLB being an exception -- more on that later). College sports will be especially difficult to watch given the proliferation of dedicated conference channels.
Step 2: Getting the hardware
If that isn't a problem, cord-cutting should be feasible. But if you're going to do it, you'll need some hardware. For every TV in your household, you'll want an HD antenna and an Internet-connected set-top box.
An HD antenna will give you access to the broadcast networks, and by extension, the most popular programming on TV. Antennas themselves range in price quite drastically -- from as little as $10 to $100 or more. Many people will be fine with a $20 or $30 model, but it really depends on where you live.
The closer you are to major metropolitan area, the better; households located in more remote areas will require stronger (and therefore more expensive) antennas. TV Fool provides a tool that can help you gauge the relative strength of broadcast signals in your area. It is possible to use just one antenna, and with a system of splitters and amplifiers, provide signal to multiple TVs. But most people will probably find it easier to buy multiple antennas.
The second piece of equipment is the set-top box: the interface between your TV and the Internet. There are literally dozens to choose from, varying in both price and features. (Previously, I provided a run-down of the more popular options.)
Amazon's Fire TV is the newest, and most technically advanced, with a zippy interface and voice commands. However, the Fire TV is still lacking a number of the more popular apps, including HBO Go. Amazon has promised to continue improving the Fire TV, and by the end of the year, it could be the best choice. But as of this moment, the $99 Roku 3 is probably the best bet. It has access to more apps and services than any of its rivals, and a universal search feature that makes finding content easy.
Step 3: Adding services
Finally, and most important, would-be cord-cutters will need to subscribe to the various online services. The three most popular are, in approximate order, Netflix, Amazon Prime, and Hulu.
Netflix has a vast catalog of content, with many TV shows, movies and original programming. Films tend to rotate on a monthly basis, while Netflix offers older seasons of several hit TV shows like Mad Men, Breaking Bad and Dexter. If you didn't happen to watch them back when they aired, these shows can provide hundreds of hours of entertainment.
Amazon Prime is similar, but with slightly different content. Amazon's service has exclusive access to older Viacom shows (SpongeBob, Jersey Shore), as well as Downton Abbey, and later this month, some of HBO's critically acclaimed series (The Sopranos, Six Feet Under). Amazon has a couple of exclusive shows of its own, and many more on the way.
Hulu has more current programming, giving subscribers access to many shows the day after they air. Hulu carries shows from more than a dozen different networks, including Fox, Syfy, MTV, and Comedy Central.
Unfortunately, Hulu doesn't have deals with every network, and there are certain shows you may want to watch shortly after they air (Mad Men, The Walking Dead, Louie, etc.) that aren't available on Hulu. These shows aren't part of Amazon's Prime video service, but episodes can be purchased digitally the day after they air. At $3 per episode, it can get expensive, but if you find yourself sticking with cable for just one or two shows, buying them individually may, in fact, be cheaper.
At current prices, subscribing to all three major video streaming services costs only $292 for an entire year . And that isn't including the additional value of Amazon Prime (free two-day shipping).
There are other, more niche-oriented services: the WWE Network for wrestling fans, MLB.tv for baseball nuts, and NHL Gamecenter for hockey buffs. These services are more expensive than Netflix, Amazon, and Hulu, but should appeal greatly to die-hard fans, surpassing even a cable subscription in terms of value.
Bonus: Paid-TV content
Lastly, it's worth pointing out that many traditional networks now have apps accessible to owners of Internet-connected set-top boxes -- ESPN, HBO, and Showtime, most notably. Unfortunately, access to these apps cannot be purchased on an a la carte basis -- the only way to use them is to get a log-in and password from your cable provider, and the only way to get one is to have a cable subscription.
Other writers have suggested that cord-cutters should borrow their cable-subscribing friends' or family members' passwords. This phenomenon appears to be fairly widespread, but has largely been overlooked by the networks. While feasible, it must be noted that this practice is a violation of paid-TV providers' terms of service, and at best, lies in an ethical gray area. Readers can decide for themselves whether or not to pursue such an option.
Cancel cable -- save hundreds
Canceling cable doesn't mean losing access to TV programming -- far from it. Traditional cable packages still offer the best, and most recent, programming, but with some packages running $100 or more per month (in addition to hardware costs, taxes and other fees), many subscribers may feel that they are not getting value for their hard-earned dollar. If you can deal with the limitations, ditching cable for Internet video will save you greatly over time.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.