That’s the critically important question that’s being debated  across the industry and — finally! — head-on by two of the Street’s savviest analysts: Bernstein Research’s Todd Juenger and Craig Moffett. Juenger kicked things off in a note last week, and Moffett delivered his response today. The core issue is whether millions of consumers will cut the pay TV cord rather than accept ongoing price hikes driven by network owners including Time Warner, Viacom, News Corp, Disney, NBCUniversal, CBS, and Discovery. For competitive reasons, they want to pack more original shows and high-priced sports on to their schedules — and pass the rising costs along to cable and satellite providers. But the pay TV distributors say that they’d need to pass their higher costs on to consumers, and too many are so cash-strapped that they’ll simply cut the cord and watch shows from over-the-air broadcasts or low-priced Internet services such as Netflix. If things continue, the argument goes, then Big Media will have to abandon the lucrative and ubiquitous basic cable bundle that requires customers to pay for lots of channels that they never watch. If that happens, and channels are offered a la carte, no more than 10 would be profitable enough to survive, Needham & Co analyst Laura Martin estimates.

Here’s a synopsis of the arguments Junger makes in defense of programmers — and Moffett’s explanation why he thinks they’re headed off a cliff:

Juenger: Consumers are more willing than they let on to pay for pay TV. Basic cable rates have grown about 4% a year. While that’s higher than the inflation rate, it’s also lower than lots of other expenses that people accept including dog food. It certainly hasn’t resulted in widespread cord cutting; about 90% of all households continue to subscribe to pay TV. Viewing is up — and so is the quality of TV programming. What about a la carte? “If we woke up tomorrow and everything was available in pure a la carte, we think little would actually change.” Consumers would probably stick with the current pay TV bundle once they realize that the alternative is to shell out as much, or nearly as much, as they do now to receive fewer channels. Besides, the cable and satellite companies that are clambering for the opportunity to offer channels a la carte are being disingenuous. They could end up with less revenue if the programming bundles are busted and people really did order fewer channels. And if distributors really feared that consumers would flee from rising prices, then they wouldn’t charge such aggressive prices for broadband — a business that they control. In the end, “We believe it would be foolish to bet against the stubborn relationship of Americans with their TV, and the intransigence of the incumbents who provide it.”

Moffett: This isn’t a debate about what the average consumer will do. It’s about the poorest 40% of the country. Pay TV companies need to grow, and they can only do that if they maintain high penetration rates among this huge swath of the population. But people are hurting: The average household in the bottom 40% earns just $18,652 a year after tax. Families have no money left for discretionary purchases after they pay for food, housing, transportation, and healthcare. And it’s a struggle to handle additional expenses. People find it harder to secure credit now than they did five years ago. What’s more, no matter who’s elected in November, there’ll be less public assistance as the government grapples with deficit reduction. So the only way the bottom 40% can afford to pay higher prices for pay TV is if they spend less on something else. Up to now they’ve been able to do that by cutting other media including wired phones, newspapers, magazines, CDs, and DVDs. But those savings may be gone especially as consumers shoulder rising expenses for wireless phones and Internet service. Forced to choose, people will spend on food and shelter before telecom and entertainment. “And the picture for the bottom two quintiles remains, well…terrifying.”

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