For years now the media and cable companies have talked about cord cutters. At first it was just a buzzword, but now this growing group of Americans is starting to truly change the television landscape.
In 2013, the net amount of American pay-TV subscribers fell by more than 250,000 -- the first full year drop ever. It's a relatively minuscule amount compared to the more than 100 million Americans who still pay for satellite or cable, but it represents tide of change in the television industry that's only getting stronger.
Rage against the provider
So just how fast is this cord-cutting trend moving? According to data from Experian, the amount of cord cutters (those with high-speed Internet connection but no pay-TV subscription) has increased 44% since 2010. Right now only 6.5% of U.S. households don't have a pay-TV subscription, but that's up from 4.5% four years ago.
So why the change?
Experian's data shows two key factors at play in the rise of cord cutting and "cord nevers" (those that have never had a cable or satellite subscription). The first is the increase in video watching on tablets and smartphones. When people have a smartphone or tablet, they are less likely to pay for cable or satellite.
But while this is a factor, Experian said that, "it's the ability to stream or download video directly to the television -- the modern caveman's campfire -- that seems to be the tipping point." Apple TV, Roku, and Google's Chromecast have made this possible. Experian's data shows that 12.4% of 18-34 year olds are cord cutters, but if you add a Hulu or Netflix subscription into the demographic, the number jumps to 24.3%.
Add to the mix that the average revenue per user for the cable industry is $85.80 and it's no surprise that an increasing number of Americans are ditching traditional pay-TV for Netflix and other services. In fact, media research firm Magna Global expects cord cutting to increase 220% by 2016 to a total of 16 million American households.
As ArsTechnica recently noted, telecom analyst Bruce Kushnick said his Time Warner Cable (UNKNOWN:TWC.DL) bill increased by 112% over the advertised price, in less than two years. When Kushnick signed up for the service he was given an $89.99 promotion, but now pays $190.77. While promotional rates clearly expire after a time, he argues in a Huffington Post article that the amount of hidden fees added in customer bills is the real problem.
Time Warner is in the process of merging with Comcast, a move that will bring together two of the biggest cable companies in the U.S. and will likely leave customers paying the high cable bills they do now.
Change is coming
DISH Network (NASDAQ:DISH) is in the process of putting together a more inexpensive online television service to lure in the cord-cutting generation. So far the company is rumored to have made deals with Disney (NYSE:DIS) for its ABC, Disney Channel, and ESPN networks. That's good news for cord-cutters who miss out on many live sports events.
Dish is expected to release a 10-channel service that costs around $20-$30 as early as the end of this year. That would put the service below the cost of many TV packages, but much more than the $8 most subscribers pay for Netflix or Hulu.
The real game changers in the television industry may be the single channel subscriptions networks are starting to offer. Just this month both HBO and CBS announced a la carte online streaming services that don't require a satellite or cable subscription. While HBO hasn't released many details, CBS All Access costs $6 per month and gives live and on-demand streaming of CBS shows. Of course, TV watchers can get CBS broadcasts via an antenna for free, but it's the thought that counts.
The Internet has overturned many an industry, and it appears it's now cable and satellites' turn. With a plethora of streaming devices for television sets, plus the cheap pricing of Amazon Prime, Netflix, and Hulu, it's hard to imagine future cable and satellite subscriptions looking anything like they do right now.
The more popular Netflix and Amazon Prime become, the more users will get tired of paying exuberant prices for content, while still having to sit through commercials. Netflix has proved it can make high quality programming, like House of Cards, and provide on-demand programming, all without commercials or high monthly bills. Now it's cable and satellite's turn to figure out how to follow a similar path.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Google (A shares), Google (C shares), and Walt Disney. The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), Google (C shares), and Walt Disney. 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.