Netflix Is Superior to Cable Television in Almost Every Way

Netflix (NASDAQ: NFLX) is getting closer and closer to its long-term goal of 60 million to 90 million domestic subscribers. It ended the first quarter with 56.7 million subscribers in the U.S., and it expects to add another 1.2 million in the second quarter.

While Netflix's domestic subscriber growth is slowing, one analyst believes it could easily reach the top end of Netflix's guidance. Bernstein analyst Todd Juenger argues Netflix will easily have 90 million domestic subscribers in time, if not for the mere belief that "Netflix is a superior product for entertainment programming, in almost every way, compared to conventional TV." And considering cable TV peaked around 100 million subscribers in the U.S., Netflix should be able to reach that level in time.

The many advantages of Netflix over cable TV

Netflix's streaming service is built around how people consume media today. In fact, it's at least partially responsible for how people consume media today.

You can stream shows and movies on demand, commercial-free, on practically any device with a screen. Compare that to traditional TV, which is typically only available through a set-top box hooked up to a television. TV Everywhere apps are still clunky and don't always work outside the house, and the on-demand selection of most cable services is wanting. Importantly, the user interface is usually subpar compared to streaming video options like Netflix. And worst of all, there are commercials.

Of course, cable providers are working to improve their products. Comcast (NASDAQ: CMCSA) has notably taken steps to improve its user interface and on-demand selection with its X1 platform. And customers with X1 set-top boxes have shown higher retention rates than those without it, according to Comcast. AT&T (NYSE: T) developed DIRECTV Now, so customers can watch TV how they watch Netflix -- anywhere and on any device.

But these improvements are in an effort to catch up to Netflix and other streaming services. And when you consider how much AT&T makes off the average pay TV subscriber -- $113.43 per month -- Netflix is a considerable value at 1/10th the price.

The one place cable shines

Pay TV is great for news junkies and sports fans. Netflix doesn't dabble in news or sports, and it certainly doesn't do live events. Consumers interested in that kind of content have no choice but to subscribe to the big cable bundle.

That said, options are improving. AT&T just started offering Watch TV for $15 per month, which it bills as an entertainment-only bundle, but includes CNN. Disney is offering ESPN+, which features hundreds of live sporting events throughout the year. There's an increasing number of skinny bundles offered by both start-ups and stalwarts catered toward various niches like sports and news.

Juenger points out that as these skinny bundle options proliferate, it will only increase the demand for Netflix, as it fills out the general video entertainment left out by skinny bundles.

Reaching 90 million U.S. subscribers

It's only a matter of time until Netflix reaches 90 million U.S. subscribers, Juenger proposes. He conducted a survey that shows about 80% of Netflix subscribers are under 50 years old, but that cohort makes up just 55% of the U.S. adult population. As consumers age, they ought to exhibit similar penetration rates, increasing the overall penetration for Netflix. He expects that trend alone will lead the company to reach 80 million subscribers within 15 years.

Adding to that is the constantly improving content library featuring hundreds of original series, films, and comedy specials. Netflix is producing 1,000 new originals this year alone, and approximately 85% of all new spending is going toward original productions. For reference, that's about $1 billion to $1.5 billion worth of new original content this year.

At $11 per month, Netflix is still one of the best values in entertainment. And it's only going to become more compelling as people gain more options for video entertainment.

So while the growth rate has slowed for Netflix's domestic subscriber count, it's still steadily marching higher, and ought to continue to do so for some time.

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