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.
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.
Daniel Kline has no position in any stocks mentioned. He has multiple connected TVs. The Motley Fool recommends Apple, Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (C shares), and 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.