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The Trend Is Not Comcast's Friend


More Americans are cutting the cable cord, led by the young.

The trend is not a friend to the cable television industry. And soon the phrase "cable television industry" is likely to be more or less a synonym for Comcast (NASDAQ:CMCSA), which is in the process of a proposed merger with Time Warner Cable (NYSE:TWC) that would give it a combined reach across 30% of America. The company will have about 35 million subscribers compared to fewer than 5 million for its nearest competitor, Cox Communications.

So what are the trends Comcast should be worried about?

A new report from Experian Marketing Services, a consumer data services firm, says that about 6.5% of American households have cut the cable cord, meaning they've canceled their cable or satellite television subscriptions while keeping high-speed Internet services. That's about 7.6 million homes that are doing without cable television service, up from 4.5%, or 5.1 million homes back in 2010.
If that television subscriber loss doesn't sound dire enough, given the reputation of big cable, consider these factors:
  • In any household that includes at least one member of the millennial generation, the 18 to 34 age group, the figure rises to 12.4%, from 4.5% in 2010.
  • In any household that has a subscription to Netflix (NASDAQ:NFLX) or Hulu, the figure rises to 18.1%, from 12.7% in 2010.
  • In any household that has a smart phone or a tablet, the likelihood that they have cut the cord increases substantially. Owners of Apple (NASDAQ:AAPL) devices are most likely of all to cut the cord.
The survey counts only households that had subscribed to cable television in the past and canceled it, and young people now on their own who never had cable television.
The key, not surprisingly, is streaming video. Those who watch video on any device -- phone, tablet, or television -- are much more likely than others to eliminate cable television service.
But interestingly, the final deciding factor in cutting off cable television service is getting that big screen in the living room hooked up to the Internet.
The decision to go cable television-free is most likely to come only with the acquisition of a device that makes it easy to stream or download video to the big screen.
There are many contenders in this area, including gaming consoles as well as Roku, Apple TV, Google (NASDAQ:GOOG) Chromecast, and, most recently, Amazon's (NASDAQ:AMZN) Fire TV.  Owners of any of those devices or gadgets are three times more likely than others to cut the cord.
As these devices become more common, along with televisions with built-in Internet connectivity, "we should expect to see the number of cord-cutters grow," the report concludes. About one-third of all households are already equipped.
In other words, television is not dead, but the cable companies are looking quite poorly. At least, as they now operate their cable television services.
But here's the rub: Big cable is also the dominant provider of Internet service, again with Comcast on top. That is increasingly an "unassailable" market position, according to the latest report from IHS Technology, because cable is relatively cheap to upgrade or expand and since half of all Americans who have broadband service are using cable connections.
Cable's nearest competitors currently are DSL services, whose share is shrinking.
But one alternative is growing fast, according to IHS, and that is fiber access to broadband through Verizon's (NYSE:VZ) FiOS service. As of last year, fiber access is growing even faster than cable, though it still has only about 8% of the market.

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