The lure of no longer having a cable bill makes the idea of cutting the cord incredibly tempting.
Drop Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC), Verizon (NYSE:VZ), AT&T (NYSE:T), or one of the other major players and the benefits seem obvious. With cable bills averaging $64.41 for expanded basic service, according to the Federal Communication Commission's annual study of prices, cutting the cord appears to be a great idea -- a way to save money.
But while the benefits of dropping your cable subscription seem obvious, the reality can be quite different. It's possible to save money as a cord cutter, but it's not a guarantee. And while you might save a few dollars, those savings come with their own price.
Despite the lack of a singular cable bill, it's actually possible to spend more attempting to piece together all of the content offered on traditional, wired pay television. Before you drop cable, heed these warnings and make sure you'll actually be saving yourself money.
A la carte can cost more
Not having cable can lower your monthly expenses, but only if you're willing to have significantly less content. The average person pays $0.48 per expanded basic channel. Those cable packages, of course, include channels you may not watch, but the overall value is significantly better than the existing and soon-to-exist digital streaming live TV options.
DISH Network's (NASDAQ:DISH) Sling TV core $20 package -- after a few recently announced channels are added -- will offer 20 channels. That's $1 for each. Sling's $5 add-on packages for news, sports, movies, and kids come in at similar, or even higher, prices per channel.
Apple's rumored new TV service will offer 25 stations for $30 to $40, according to CNET. That's more than $1 per channel. Sony's Vue digital streaming service offers no great bargain, either, as it has 53 channels for $50, CNN Money reported. Pay more, and you get more channels, including some regional sports networks, but the cost is higher than what people pay for cable.
True a la carte channel selection would allow people to get exactly the channels they want, saving money, even if they pay more per channel.
By contrast, the "over-the-top" TV packages highlighted here offer cable-like bundles, at higher per-channel prices. Yes, they might save you a little money (very little with Sony's deal), but you're getting much less content.
Streaming services add up
If you're willing to live without live TV at all, you can save money and still have some entertainment choices by opting for Netflix (NASDAQ:NFLX), Hulu, or Amazon.com's (NASDAQ:AMZN) Prime Instant Video. These services are all under $10 a month, and each has a decent selection of programming. Netflix is particularly strong in originals, while Hulu has more current network programming, and Amazon has a mix of everything.
It will soon also be possible to subscribe to HBO without a cable subscription, and there are countless other offerings, such as WWE Network and digital packages from the NHL, Major League Baseball, and the NBA.
If you get by on Netflix, Hulu, or Amazon alone, you save significant money over even basic cable at $22.63 a month, but start adding multiple services and the value diminishes quickly.
For some, especially people who like watching prime-time television when it airs and live sports, the best value may be cutting an expanded basic cable subscription to a basic one and supplementing with one of the digital services.
Bundle savings are lost
Another little-considered fact among would-be cord cutters is that cable companies offer incentives for bundling. This could range from a small $5-$10 monthly discount for having cable and broadband to dramatic price reductions for people who order multiple services.
Some of these deals are promotional ones, which only last a certain amount of time, but the major cable companies are getting more aggressive in using would-be cord cutters' need for broadband to make cable worth their while.
A $5 or $10 monthly savings may not matter, but a $60 broadband connection offered for $99 a month along with cable and phone would make almost anyone think twice about cutting the cord.
Cut the cord, carefully
Cord cutting is only a major savings if you're very disciplined in how you replace your cable subscription. In many cases the savings are an illusion, eaten up by paying for alternatives and spending more on a broadband connection.
Cable companies aren't blind to the changing nature of their business, and many are willing to negotiate to keep you from leaving.
Dropping cable can save you money, but keeping it in a smart way can accomplish the same thing. The one thing cord cutting and digital services have given consumers is options. Don't just drop cable because it seems like a good idea. Make an informed decision and use your choices to make your pay-TV provider make you the best deal possible.
Daniel Kline owns shares of World Wrestling Entertainment,. He won't cut the cord for fear he might miss something. The Motley Fool recommends Amazon.com, Netflix, and Verizon Communications. The Motley Fool 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.
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