Netflix is Killing Your Cable Company -- Again

Don't look now, but cord cutting is fashionable again.

There were a whopping 348,000 net cancellations in this country's pay TV industry during the second quarter, according to a new report by IHS iSuppli Market Research. The decline of U.S. basic video subscribers from 101.2 million at the end of March to 100.9 million at the end of June is problematic.

Roughly 600,000 more cable television accounts got fed up during the quarter than those that gravitated to the traditional providers. Satellite TV companies combined to kiss 62,000 net subscribers away. After years of growth, even the mighty DirecTV (NYS: DTV) posted its first quarter of net defections.

Hungry and lower- priced telcos offering broadband television services gained 312,000 customers -- but where did the other 348,000 homes go?

IHS iSuppli reasons that the economy and the growing popularity of Netflix's (NAS: NLFX) service are to blame, but the smarter bet has to be that Netflix is pretty much acting alone here.

Bucking the trend
If the economy was the culprit, wouldn't other premium entertainment subscription services be feeling the pain?

We know that that's not the case. Sirius XM Radio (NAS: SIRI) added 622,042 net subscribers during the same three months.

Arguing that pay TV is sinking because customers are tired of, or can't afford, the ever-escalating prices -- an argument that would validate the economy as a scapegoat -- glosses over the fact that Sirius XM boosted its monthly rate by 12% earlier this year. The satellite radio provider moved its prices higher in January, yet it's still looking at more than a million more premium radio accounts than it was watching over when the year began.

Perhaps, more importantly, IHS iSuppli forecasts that the balance of this year will also treat the pay TV industry to "flat or slightly negative" growth. It also expects the malaise to last "through 2016 and beyond," implying that this isn't simply a hiccup. Even as the economy inevitably improves in the coming year, pay TV will continue to lose relevance.

That may be merely an opinion, but it's a research firm's educated opinion.

Summer drubbing
Optimists may argue that there's some seasonality at play here. It may not be a coincidence that the number of pay TV subscribers also shrank during last year's second quarter, shedding 340,000 accounts. Before that, the second quarter of 2010 was the first time ever that the pay TV industry suffered a decline. Market researcher SNL Kagan reported at the time that the industry suffered 216,000 net cancellations two summers ago.

It makes sense on the surface. Network shows tend to wrap up their seasons in May. Families travel. College students get out of school. However, second quarters were always growth quarters -- until the springtime of 2010. And if we go from 216,000losses two years ago, to 340,000 cancellations last year, to 348,000 net leavers now, it's clear that the trend is growing.

More to the point, if folks are abandoning premium TV during the second quarter as a seasonal -- and not paradigm -- shift, wouldn't Netflix also be bleeding subscribers?

It's not. Netflix tacked on 530,000 total subscribers -- or a more impressive 670,000 paying subscribers -- in this country during the same three months that saw its costlier peers shed nearly 350,000 homes.

There is a correlation here, and it's going to get worse as cable networks and pay TV providers fail to realize that consumers are no longer interested in paying more for channels that they're not watching.

Cupertino can cut the cord
Apple (NAS: AAPL) may begin to reshape this perception if it uses its market leadership to roll out premium TV the fair way when it rolls out its inevitable smart television sets. Apple can truly lead the way by beating the market to the obvious. There may be more than 100 million homes in this country paying for a ton of cable content that they don't watch or need, but it won't be that way forever.

Will Apple owe that success to Netflix? Absolutely. With nearly 24 million families streaming content on their terms for just $7.99 a month through Netflix, it's a gateway drug to logical TV consumption.

It's not the economy that's awakening consumers to the joke that pay TV has become in an era where the tools exist to stop being bamboozled.

Well done, Netflix. Your turn, Apple.

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The article Netflix is Killing Your Cable Company -- Again originally appeared on Fool.com.

The Motley Fool owns shares of Apple and Netflix.Motley Fool newsletter serviceshave recommended buying shares of Apple and Netflix.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizhas been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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