I’ve read several things lately that make me wonder about the need to include cable TV in the bundle. I saw an article that blamed part of Google Fiber’s performance on the fact that Google’s cable TV is more expensive than the competition.

The first place to look for this answer is with nationwide surveys. There have been major surveys for the past five years that report that somewhere between 15% and 20% of homes say they are considering dropping cable in the next year. Yet they don’t do it. That demonstrates a lot of dissatisfaction among customers, but something about the cable product keeps people connected even though they are unhappy. We are probably on track to see about 1.5 million people drop cable this year. That may sound like a lot, but with the total number of cable homes just under 100 million, true cord-cutting is still a relatively minor phenomenon.

We also see clues that tell us that people are downgrading cable packages when they can. It’s been reported that ESPN has lost millions of customers more in the last few years than can be attributed to cord-cutting. The only way for that to happen is for a lot of households to be downgrading to packages that don’t include ESPN. And since ESPN is in the expanded basic package for most cable companies, that means that households must be downgrading to the smallest possible basic packages – that that have 20 channels or less. But cable companies don’t report these numbers, so we can only guess the extent of cord shaving.

There is also the issue of affordability. Certainly there are many homes that can no longer afford expensive cable TV packages. Affordability probably accounts for a significant portion of the 30% of households that don’t have a cable package. But since cable rates continue to increase faster than the rate of inflation there must be more homes each year that find they can no longer afford cable. We now know that affordability is the major factor that is capping broadband subscriptions nationwide in markets where broadband is available.

And my guess is that broadband is growing to become more valuable than cable to many households. There is enough entertainment available online that a household dropping cable is not isolated from video like they were just a few years ago. We certainly see a lot of homes subscribing to on-line video. A Nielsen survey from the first quarter of this year reported that more than half of all households are buying at least one online video service. Nielsen estimated that by June of this year that over 45 million homes will pay for Netflix. Hulu had over 12 million subscribers by the end of May of this year. We don’t know how many people watch Amazon Prime video, but the Prime shipping service has over 54 million customers.

Over the last year I know a half dozen smaller telcos that have dropped the cable product altogether and have directed their customers to one of the satellite services. Small companies all tell me that they are losing money on cable TV, and the numbers behind their decision are compelling. Larger companies can gain some economy of scale with cable TV, but only the largest dozen cable companies are actually making money with the product.

We know that when Google Fiber first launched service without a cable product they stumbled. They seem to have done a lot better after adding cable. But part of their problem also has to be the $70 gigabit product that a lot of homes can’t afford. I’m guessing that they’ll do better in Atlanta where they now offer a 100 Mbps product for a flat $50.

But still, even with those many trends acting against the cable product, somewhere around 70% of all homes in the country still buy cable from one of the cable providers – landline or satellite. It seems really hard to ignore a product that 70% of households are willing to buy. As a consultant I still have a difficult time telling companies to not offer cable TV in new markets.

One thing that is making it a bit easier is that the cable product is starting to finally move to the cloud. For example, Skitter TV now offers a cable product that can save a company from investing in a headend. And perhaps that is the long-term solution – for most cable providers to offer programming from the cloud to avoid the costs and issues of trying to go it alone.