Is Cutting the Cord With Cable Worth It?

By Markets Fool.com

Dropping cable has become a badge of honor among budget-conscious consumers.

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That makes sense because with so many streaming alternatives out there which individually cost less than cable, not paying Comcast (NASDAQ: CMCSA), Charter Communications (NASDAQ: CHTR), AT&T (NYSE: T) or another provider feels like a victory. And with cable bills reaching an average of $103 each month, according to a September 2016 report from Leichtman Research Group (LRG) it's easy to see why consumers would seek out alternatives.

The problem, at least for some consumers, is that dropping cable has its own drawbacks. It's a situation where on the surface cutting the cord seems like an obvious financial victory, but for some people -- especially families with children -- it may not make as much sense as it seems.

Dropping cable can come with savings and a cost. Image source: Getty Images.

Do the math on cord cutting

Let's assume that cord-cutting makes the most sense for people who have an average cable bill. If you already have a bare-bones subscription or pay for every channel offered, cutting the cord likely holds less appeal for you. Using the LRG report numbers, which showed a 4% increase from 2015 to 2016, it's reasonable to say that in order for cutting the cord to make sense the alternative should cost less than $103 each month.

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That sounds like it would be easy, but dropping cable comes with its own costs and those can pile up quickly. If you cut the cord and enact an austerity plan, you will clearly save money, but if you want to drop cable and still have a wealth of entertainment choices you may be surprised.

You will still need internet

Most cable companies including Comcast, Charter, and AT&T generally offer better deals for bundling services. That can be as little as a $5 monthly discount or a huge break on internet if customers get cable (usually for a two-year term). There's no definitive amount for how much more you will pay for only buying internet from your cable provider, but it will almost certainly be more, even in markets served by more than one ISP.

For the purpose of calculation, let's assume non-pay television buyers will spend $10-$20 extra each month, and let's assume going forward the middle figure of $15 per month as the standard charge for internet connection.

You will need content

If you are used to cable, it's reasonable to assume dropping it is not an excuse to give up television all together. Most cord-cutters will want to replace much of the content they lost and for a family that can add up fast.

For the purpose of comparison I will assume a family of four where mom and dad watch cable and primetime shows together, but mom likes to watch sports while dad catches up on movies. The kids, ages 6 and 12 both enjoy programs aimed at their age groups as well as movies and some sports.

For this family of four a logical place to start would be DISH Networks (NASDAQ: DISH) Sling TV service. That package offers live cable channels including ESPN and TNT for sports, Cartoon Network for older kids, and CNN for news. There are lots of add-ons offered, but the basic package, which allows viewing on one device at a time costs $20.

For mom and dad to get their network shows the best option would be a Hulu subscription coming in at $7.99 a month and the family need for movies, along with lots of original programming for all ages could be met with an HBO Go subscription ($15) and Netflix (NASDAQ: NFLX) $9.99.

All of those are not needed, but with four people with different needs, that's not a crazy estimation of what a family would want to keep everyone happy.

Service Cost/month
DISH Sling $20.00
HBO Go $15.00
Netflix $9.99
Hulu $7.99
Internet up-charge $15.00
Total: $67.98

Those are not the only streaming services out there, but even if mom wanted a sports package like NBA League Pass ($199 a year) or Major League Baseball's MLB TV ($109.99), or even both, the cost still comes out to less than the $103 people pay on average for cable.

Cutting the cord does save money

Based on the numbers above a family of four can cut the cord with cable and still save about $36 a month -- less if they add sports packages, more if they cut out one or more of the services listed. The problem is that dropping pay television comes with a loss of programming. You can replace many shows -- especially if you are willing to wait -- but you will miss out on some things.

Live sports (specifically most NFL games), local news, and some other scripted shows simply cannot be purchased via streaming methods. If what you're giving up won't be missed then dropping cable makes a lot of sense. If you will find yourself having to spend Sundays at a sports bar to follow your favorite football team then saving $36 a month may not be worth it.

Cord cutting can be a financial positive, but it can also be a case of giving up content you enjoy for a relatively small return.

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Daniel Kline has no position in any stocks mentioned. He tried cutting the cord and did not last very long. The Motley Fool owns shares of and recommends 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.