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This Survey Suggests Netflix Really is Killing Cable TV

By Sam Mattera - Jul 11, 2015 at 5:10PM

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A recent survey from Cut Cable Today highlights the growing number of Netflix subscribers forgoing traditional pay-TV services.

Nearly one-third of domestic Netflix (NFLX 5.02%) subscribers do not have traditional pay-TV service. Of those that do, 9% say they're likely to cancel, according to a recent survey from Cut Cable Today.

This may sound like a good thing for traditional cable providers -- after all, the survey's findings suggest that more than two-thirds of Netflix subscribers still have pay-TV. Of those, the overwhelming majority (91%) don't consider themselves likely to cancel.

But these findings are noticeably changed from prior years. The move away from cable appears to be accelerating, and Netflix and other streaming video services may be playing an important role.

It's getting worse for pay-TV
A similar survey conducted two years ago found much lower rates of cord-cutting among Netflix subscribers. In a survey conducted back in June 2013, analysts at Cowen & Company found that almost 75% of domestic Netflix subscribers still had pay-TV.

Other researchers have found results consistent with Cut Cable Today's findings. SNL Kagan reported that there were nearly 11 million U.S. households with broadband Internet connections but no pay-TV service as of the end of last year, up from 9.9 million at the end of 2013. HBO research has found that about half of these households subscribe to streaming video services.

It could get much worse. Jim Dolan, Cablevision's CEO, said last month that the number of pay-TV households could decline by as much as 25% over the next five years. The figure was, admittedly, his "personal guess," but as he leads a major pay-TV provider, his outlook carries some weight.

Growing competition doesn't appear to be hurting Netflix
Netflix's content has certainly evolved since the summer of 2013 -- the company has added roughly a dozen exclusive, original series -- and its total number of domestic subscribers has increased by around 30%. Netflix seems at least partially to blame for the ongoing move away from traditional pay-TV services, but it's not alone: the broader Internet-TV landscape has evolved at an even more rapid pace. 

Devices like the Chromecast and Fire TV didn't exist two years ago -- they've since sold tens of millions of units. Premium networks like HBO and Showtime were still publicly supporting and defending the existing pay-TV ecosystem -- now they offer their networks online, free from any cable commitment. Traditional TV alternatives like Sling TV and CBS All Access weren't available two years ago, either.

As potential substitutes, these services could compete with Netflix, perhaps blunting its growth, or robbing it of subscribers. But Cut Cable Today's survey suggests that won't be the case.

Rather, they could stand as complements. Of the Netflix subscribers it surveyed, nearly half also subscribe to Amazon Prime, and almost one-third subscribe to HBO Now. And Netflix subscribers are happy with their service -- 93% said they're still likely to have it 12 months from now.

A shrinking pay-TV industry should benefit Netflix
Cut Cable Today's findings support the notion that cord-cutting is an ever-growing trend: one that seems beneficial to Netflix's business model. Netflix has added tens of millions of domestic subscribers even as the pay-TV landscape stood firm. Now that a growing number of consumers are looking to cut the cord, Netflix's business only looks more compelling.

Freed from expensive cable bills, these consumers could -- if they don't already -- subscribe to Netflix. If they already do, their lack of cable service could increase their loyalty.

Sam Mattera has no position in any stocks mentioned. The Motley Fool both recommends and owns shares of Amazon.com 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.

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