More Bad News for Cable TV: Is the Industry Finished?

By Markets Fool.com

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As the largest cable TV provider, Comcast has the most to lose from demographic and disruptive trends. Source: Comcast

The week has been a poor one for the status quo in the cable TV industry. Among the spate of negative news was PricewaterhouseCoopers' report/survey (via The Wall Street Journal), titled "Feeling the Effects of the Videoquake," pointed out cable subscriptions among Americans aged 18 to 24 dropped to 71% in 2014, down 6% from last year; Americans aged 25 to 34 with cable dropped a matching 6% to come in at 67% with a cable subscription.

In addition, a Business Insider article that builds upon a survey from mobile advertising company Marchex found that 26% of all customers who call U.S. cable TV companies request "Internet-only" service. Both surveys point toward a common reason for those who are abandoning pay TV: streaming, over-the-top video services like Netflix and Hulu Plus. For perspective, another earlier study from Nielsen found 18 to 34-year olds with streaming-video watch 20% less TV after they sign up for streaming-video services.

The harshest indictment came courtesy of PricewaterhouseCooper's report, when current subscribers were asked to agree with the statement: I see myself subscribing to cable in five years, only 61% of those answered in the affirmative. If true, this points toward strong headwinds for pay-TV providers Comcast and Time Warner Cable that stand to lose nearly 40% of their customers.

Ad dollars are "following eyeballs" to digital, but still skew toward pay TV
Earlier this year, market research firm eMarketer reported that digital has already overtaken television when it comes to media. Led by huge increases in mobile media consumption, digital consumption -- online and mobile -- now commands nearly half of overall media consumption; television takes roughly 37% of media consumption.

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However, when it comes to ad spend, television takes over 38% of total ad spend while digital only commands 28%. Oddly enough, print media's numbers of time and ad spend are 3.5% and 17.6%, respectively.

But it appears media firms are starting to get the memo. As ad dollars follow eyeballs, look for spending to shift to digital media. Another study from media firm Magna Global finds that U.S ad revenues will increase 2.7% to nearly $170 billion in 2015, but television expenditures will drop 1.5% and digital media ad spend will increase 15.5%.

Earlier I've argued this shift has the potential to raise cable bills as content providers like Disney and Time Warner's Turner Broadcasting will ask for higher affiliate fees from pay-TV providers to make up for shrinking television ad dollars.

Content providers are quickly becoming competitors, but both benefit from the status quo
Even the symbiotic relationship between content providers and pay-TV companies has gotten especially contentious. While arguments about content costs have always existed, whether or not a channel decides to launch an over-the-top video service is starting to be an important factor in negotiations. Recently, Dish Network(NASDAQ: DISH) and CBS (NYSE: CBS)inked a multiyear deal after a short break in service and veiled threats from both companies.

Two of the issues dealt with mobile and over-the-top programming; Dish received the right to deliver CBS's Showtime to mobile devices but not to CBS's programming for OTT services. That's important because both companies have an over-the-top service: CBS recently launched its CBS's All Access to target those without pay TV. Dish Network is looking to launch a slimmed-down, Internet-only service for those "cord-cutters" named Nutv.

Unfortunately for both sides, they'd prefer not to have this discussion in the first place. Pay TV benefits from the status quo. As is, large, expensive pay-TV packages benefit content providers and cable companies. As more viewers defect to over-the-top services, look for the acrimony between programmers and cable providers to continue. In the end, this trend has the potential to unravel cable TV as we know it.

The article More Bad News for Cable TV: Is the Industry Finished? originally appeared on Fool.com.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix 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.