Netflix Has Cable Companies Playing Catch-Up

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A new survey has ugly news for Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWX), and every other cable television provider in the U.S.: Netflix (NASDAQ:NFLX) is eating you alive.

In the past two years, as Netflix has swelled to more than 20 million subscribers thanks to the popularity of its low-cost streaming video service, there has been a great deal of conjecture over how that’s hitting traditional television providers. There’s been evidence suggesting that Netflix is doing damage. While it grew, cable providers shrank. Time Warner shed more than 400,000 subscribers while Comcast lost more than 750,000.

The latest survey by Diffusion Group draws a clearer link between Netflix and cable providers though. Of the 2,000 broadband subscribers surveyed, 32% say that they plan to halt some of their cable services since they subscribe to Netflix’s streaming service. That’s double the number from the same survey conducted in 2010.

As Peter Kafka wrote at All Things Digital, this doesn’t necessarily mean that Netflix users will cancel their cable TV service outright. The ones who don’t cancel, however, will stop subscribing to premium channels and services like HBO, so even if Comcast and Time Warner don’t see heavy subscriber loss in 2011, revenue will drop all the same.

What’s the key? Right now, it appears Netflix is more than just a technology innovator that can be easily copied in the near future. Competing streaming video services like the Comcast, Disney (NYSE:DIS), and News Corp. (NYSE:NWS) venture Hulu have grown modestly in recent months, but the paid-subscription service Hulu Plus has only around 1 million subscribers, a fraction of Netflix’s stable.

Time Warner, meanwhile, is developing a number of streaming video services to try and adapt to the changing market, including a streaming version of HBO called HBO Go and an iPad app that gives current cable subscribers access to certain channels on the tablet.

Although streaming-video options are essential for catering to an audience increasingly turning to PCs, smartphones, and tablets for their television, they won’t be enough for Comcast and Time Warner to keep their cable empires churning. How then will these companies keep subscribers paying for living room service?

Internet TV is the likely key to preserving cable’s earning power. A compelling, living room-based web-browsing product and service that lets people not only use Netflix’s service, but all other online video options will be essential for keeping customers paying in the coming years. Google (NASDAQ:GOOG) struck out with its Google TV service in late 2010, but it was a victim of untested technology, limited availability, and content providers leery of yet another company controlling the value of their products. As Comcast, Time Warner and others already control much of the access consumers have to television content in the U.S., networks like CBS (NYSE:CBS) will be more willing to accommodate Internet television services with an established partner.

Comcast is already pursuing promising Internet TV initiatives. It’s introducing Skype service to its cable boxes later this year, which will lead to a strong living room partnership with Microsoft (NASDAQ:MSFT). It is also preparing a new Xfinity digital video recorder set-top box specifically for mixing Internet content with cable television.

Netflix is bleeding the cable industry, but there’s plenty of time to staunch the flow. Comcast and Time Warner simply need their varying efforts to cohere into a single strategy.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/06/netflix-has-cable-companies-playing-catch-up/.

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