Smart TVs Mean Big Business for Netflix

Nearly half of Americans have a television set connected to the Internet, and that's good news for Netflix  (NASDAQ: NFLX  ) .

A recently released research report from Leichtman Research Group finds that 49% of all U.S. households have at least one television set connected to the Internet via a video game system, Blu-ray player, smart TV, and/or a stand-alone device (including Roku, Apple  (NASDAQ: AAPL  ) TV, or Google  (NASDAQ: GOOG  ) Chromecast). That's an increase from 38% in 2012 and 24% in 2010. Overall, the study reports, 24% of adults watch video from the Internet via a connected TV at least weekly, compared to 13% two years ago, and 5% four years ago.

Netflix is clearly a driver of that increase. Nearly half (49%) of subscribers to the digital streaming entertainment service watch video from the Internet via a connected device weekly compared to 8% weekly use among all non-Netflix subscribers. Among Netflix streaming video users, 78% say that they watch Netflix on a TV set -- a similar level to the previous three years.

"This recent growth was spurred by Netflix's decision in the third quarter of 2011 to focus on streaming video, coupled with the proliferation of connected TV devices, smartphones, and iPads and tablets," said LRG President Bruce Leichtman.

Good news for Netflix, bad news for cable companies?

Netflix has clearly become the catalyst that makes it OK for many cable users to cut the cord. About half (48%) of people who don't pay for cable or satellite TV subscribe to Netflix, an increase from 29% in 2012. Looking at it another way, the number of Netflix subscribers who also buy cable or satellite service fell to 80% from 85% in 2012 and 88% in 2010, according to LRG. 

The growth of connected TVs has improved the Netflix experience, which is one factor contributing to those numbers. The reason the number of Netflix users who also pay for cable may be falling is that pay TV has become increasingly more expensive.
 
In May, the Federal Communications Commission's Media Bureau released its annual survey of cable rates. For at least the past two decades, the report shows, the average monthly cable bill has risen about $2 to $3 per year. The average household now pays about $64.41 per month, nearly triple what it paid in 1995 when the FCC began tracking the info. 
 
If you can watch Netflix's broad offering on your TV, the idea of paying less than $10 a month for a subscription instead of $60+ seems like a pretty good deal.
 
A few years ago cutting the cord meant settling for whatever programs you could get online or through streaming services watched on a computer or tablet. Now products like Amazon's  (NASDAQ: AMZN  ) Fire TV -- and to a lesser extent Apple TV and Chromecast -- have made it easy to watch a broad array of offerings on the same TVs where people watch cable. As that technology becomes more prevalent and Netlifx (along with its competitors) are built directly into smart TVs, any technological walls will fall. 
 
If your grandmother can find "the Netflix" with no more effort than it takes her to find Lifetime Movie Channel then expect the numbers of people dumping cable to grow. 

Is the market for growth cooling?

The biggest challenge for Netflix raised by the LRG report is that since about 80% of its 35 million domestic streaming users already watch on a connected TV, the room for growth among existing subscribers is small. The real market for Netflix is the 65 million or so U.S. homes that have cable but not Netflix. Though the cable industry posted its first full-year loss of subscribers in 2013, according to research firm SNL Kagan, it still serves 100 million households.

The continued adoption of connected TVs should give Netflix an easier path to those users and the cable companies may even participate in their own downfall.

That means "the road for Netflix is thinning," Leichtman told Deadline.com. "That's why they want to find an off ramp," for example, by finding cable companies willing to offer Netflix on their set-top boxes.

It's all good for Netflix 

Every day there are fewer people who need an explanation as to how Netflix works. The WWE has even taken to describing its new digital streaming network as, "It's just like Netflix, but better."

Add that broad understanding to increasing availability across normal TV platforms and Netflix should be able to ride the growth of connected TVs to even greater market share. It takes little more than knowing where to plug in an HDMI cord to configure a Kindle Fire TV. Accessing apps on smart TVs requires pushing one button (and the remote may even have one dedicated to Netflix). Subscribing once you're connected involves nothing more than signing up -- and even non-tech savvy folks can usually navigate a registration form.

Netflix is the so-called killer app for connected TV. It may not be the reason we get them, but it's why people actually use them.

How can you profit?

With so many people cutting the cord, you know cable as we know it is going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 


Read/Post Comments (2) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 11, 2014, at 11:18 AM, mdeamer wrote:

    I've had a smart tv for a few years. Came with Wifi and apps for Netflix AND Amazon streaming. Theres even an Amazon and Netflix button on the remote.

    Comparing the two services, Amazon is better, cheaper and has better options like if I want to rent or buy a movie.

    So while Smart TVs are good for Netflix, they are also GREAT for Amazon if their app is on it.

  • Report this Comment On June 11, 2014, at 11:23 AM, pauldeba wrote:

    The last thing Netflix wants is competition. and once everyone has a smart TV or internet connection, it may open the floodgates to competition. That will eventually kill thinly capitalized Netflix. They are a strong niche player, when they get promoted to the big leagues, they won't be so successful.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2990432, ~/Articles/ArticleHandler.aspx, 10/31/2014 10:28:03 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement