The traditional cable and satellite business keeps shrinking. Consumers have been cutting the cord in numbers that have steadily gone up since 2013, the first year the industry posted a year-over-year subscriber drop.
That's exceptionally good news for Netflix (NASDAQ:NFLX) which serves as a viable way for cord cutters to drop cable but still have access to high-quality programming. As more customers opt to drop cable or elect to go for cheaper "skinny" bundles with limited channels, the streaming leader should continue to post big gains.
Coupled with cable's subscriber losses is the fact that broadband internet has grown at a pace that's faster than cable cord cutting. That essentially creates a growing group of people for Netflix to target.
|Year||Pay TV gains/losses||Internet gains|
How big is cord cutting?
As you can see from the numbers above, cord-cutting roughly tripled in 2015, then doubled again in each of the past two years. In reality, however, the numbers are worse because the pay-TV counts on the chart above include 2,212,000 people who subscribe to DISH Network's Sling TV and 1,155,000 subscribed to AT&T's DirecTV Now.
Those services offer stripped-down lineups of channels aimed at allowing cable/satellite to hold onto at least some revenue from cord-cutters. That likely works in some cases, but the existence of cheaper live-streaming options may actually tip some on-the-fence customers to mostly cut the cord, replacing it with a cheaper TV package as well as Netflix.
Basically, the market is creating the perfect storm for Netflix. An increasing amount of consumers have broadband internet and are looking for entertainment options that cost less than cable.
|Netflix total global subscribers at year end||44 million||57.4 million||75 million||93.8 million||117.6 million|
Netflix keeps getting better
Cord cutting may level off at some point or it may not as younger consumers more used to consuming content on phones and tablets than televisions set up their own households. In addition to cable losing customers and more people adding broadband, Netflix also keeps growing its library.
While the streaming service has offered a strong selection nearly from the point it committed to adding original content alongside its library of movies and older TV shows, its offering gets better continually. A new member joining now could spend months just catching up on the service's series of Marvel shows or spend a sad week or so watching only Adam Sandler originals.
Watch out for the Mouse
Netflix's content library of originals has gotten so large that most companies could not compete unless they committed tens of billions of dollars over many years. The only real exception to that is Walt Disney (NYSE:DIS) which has an archive of well-loved content as well as intellectual property rights that includes Star Wars, much of the Marvel universe, Pixar, and classic Disney characters.
The Mouse House will launch a Netflix-like streaming service at some point in 2019. It's possible that some potential and existing Netflix customers may opt for the Disney product. It's also likely that the addition of such a strong streaming player will push more people to cut the cord.
Netflix can chill
The streaming leader has built up an impressive library of content and that's a competitive moat. Yes, Disney and to a lesser extent HBO have the content to compete, but even other major media players like Comcast and Sony lack the libraries or intellectual property to be real rivals.
Perhaps mergers or content library deals might create one more viable player, but after that, the pickings would be slim. Netflix has put itself in a perfect position to capitalize on current market trends while owning content assets that will prove valuable should delivery methods change again in the future.
Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.