1 Chart That Should Scare Cable Companies

Markets Motley Fool

It's no secret that cord-cutting is a thorn in the side of the cable industry. As more media companies launch stand-alone streaming video-on-demand services, the convenience of streaming is drawing more and more subscribers away from cable.

Continue Reading Below

Those streaming services have also ushered in a whole group of cord-nevers, young adults that never subscribed to cable or satellite in the first place. A recent survey from Pew Research sheds some light on just how big that group of cord-nevers is. Some 61% of young adults primarily watch television through over-the-top streaming services. That's about twice the percentage who said they primarily watch cable or satellite TV.

Cable finds more and more favor as the age groups get older; there's a clear correlation between age and a preference for streaming. While cable has a good hold on older viewers, it's not clear that it can keep its grip well into the future.

It's not just cheap and poor millennials

One of the more interesting findings from Pew's survey is that streaming isn't favored by lower-income households. While it doesn't break out results by income, per se, Pew did note respondents with a college education are more likely than those with less education to say their primary TV source is online streaming. An earlier Pew survey found college graduates between ages 25 and 32 make an average of 62.5% more than non-graduates.

The finding corresponds with a survey earlier this year from Videology, which found the main reason millennials are cutting the cord is because streaming services provide all the entertainment they need. More great television is available without a cable subscription than ever before. Hulu just won the Emmy for outstanding drama series, and six of the seven nominees from this year didn't require cable to view.

Continue Reading Below

News content was once the domain of nightly broadcasts and 24-hour cable news networks. Now, the internet is the preferred source for news among adults younger than 50, according to another Pew poll. Those people prefer reading news to watching it. Even among those aged 18 to 29 that prefer watching the news, 37% prefer to watch it online.

It seems there are fewer reasons to subscribe to cable every year as more content moves online.

It's not just about content

It's true you don't need a cable subscription to access most of the best television content that's out there. But on top of content, streaming has a few other advantages over a cable subscription.

Streaming services are available on the devices millennials use to watch TV (smartphone, tablet, computer, etc). While cable companies are catching up in their technology, the fact that streaming services are native to the internet makes content more easily accessible. There are no rules on what you can stream on mobile and what you can stream outside of your home. Everything just works.

What's more, the pricing for streaming services is straightforward. There are no promotional periods. There are no hidden fees like taxes or service charges for installation. And if you're going on an extended vacation, you can turn off the subscription for a month, and turn it right back on when you come back.

What can the cable companies do?

Cable companies are already making efforts to provide the same benefits as streaming services. They started by offering skinny bundles, which offered just a few "essential" networks. More recently, many have moved their skinny bundles to streaming services. Both Comcast (NASDAQ: CMCSA) and Charter (NASDAQ: CHTR) offer their own bundles of live-streaming channels. And nearly a year ago, AT&T (NYSE: T) launched DIRECTV NOW -- a full blown over-the-top cable substitute.

While the entries are a means of responding to the rise of streaming video on demand, the companies are admitting the degradation of their competitive advantages in live television. Cable and satellite companies benefited from massive infrastructure expenses creating a huge barrier to entry. As they give into streaming, they're admitting anyone with enough money to throw at the media companies and a cloud-computing company can play. We've seen Hulu, YouTube, and Sony all enter the market in the last couple years.

SNL Kagan analysts expect the number of subscribers to these virtual pay-TV services to grow by about 8 million subscribers over the next four years. That comes at the cost of nearly 11 million subscribers to traditional pay TV, according to the analysts' estimates.

Cable no longer dominates the attention of young adults. As they age and younger people become independent, it's likely the trend will continue to favor streaming services. Even cable companies' best efforts to combat streaming leave their biggest competitive advantages by the wayside, reducing their ability to make a profit off of video like they once did.

10 stocks we like better than Comcast
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Comcast wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of September 5, 2017

Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NFLX. The Motley Fool has a disclosure policy.