I am pleased to host another student guest post, this time by Anand Jetha. This is the 22d student guest post this semester. You can see all the student guest posts from my “Monetary and Financial Theory” class at this link. This is Anand’s 3d guest post. His first two were “Slow Progress in Battery Technology Will Hold Back Electric Cars” and “Diamonds are Not Your Best Friend.”

The number of streaming services and subscriptions like Netflix and Sling TV are on the rise. These services and the purchase of a Smart TV have been giving the false illusion that it is cheaper to cut cable services in favor of all streaming.

At one point in the last two years, it’s very likely you have talked to someone who “cut the cable.” They no longer get a contract TV subscription from AT&T, Comcast, or satellite providers like Dish. They say they don’t watch all the channels they get and consequently they don’t understand why they are paying so much for things they don’t use. There are a number of website out there telling you how to do it such as http://www.cutcabletoday.com. It may sound tempting when the “cable cutter” says they only pay $20/month plus taxes for Sling TV and let’s say a Netflix subscription for $9.99/month plus taxes. Sounds great! My question to the cable cutter is, however, how do you watch those services? Do they magically stream on your devices from some magical cloud? Well the obvious answer is no, and they rely on a steady internet connection. Internet still has to be paid monthly through one of those providers that people are trying to avoid.

The problem people face in urban areas is that the cable company that services their area (depending on if it’s a monopoly) generally provides the TV service and internet service in a bundle on 12 or 24-month contracts. These contracts can also be re-signed at the end of the term or a different provider can be selected on their 12 or 24-month contract. Comcast in Ann Arboroffers a 12-month contract with 75 Mbps and 150+ channels for $89.99/month plus taxes. So for someone to cut cable that means they are opting out of the bundle but still will need to keep the internet portion if they plan to stream TV or anything in their home. And if you plan to use multiple devices and a TV at the same time, higher speeds will be a necessary than with the bundle that has cable TV. I don’t see it being feasible for Mom to be checking e-mail, Dad to be watching Monday night football using Sling TV, and two kids watching movies on Netflix or streaming music/videos unless they have a strong internet connection over 50 Mbps. Those plans alone start at $59.99/month for the slowest internet speeds, and then add $20/month for Sling TV and $9.99/month for Netflix bringing the total to about $89.98/month. That’s exactly $0.01 cheaper than the original bundle. And if you’re anything like me, those two services alone will not be able to satisfy your need for also HBO and college sports. These will cost you extra from other streaming services. This does not include the cost of buying the equipment (Google Chromecast, Apple TV, Sling adaptor); I’ll just leave that out of the discussion for now as a fixed cost. Cutting the cable is not a horrible idea as long as cost of internet is reasonable. The more a household wants to say they can cutback because they can just “find it online,” they also need to be able to get “online.”