Is Netflix a Game Changer?

I refuse to pay almost a hundred dollars a month for the privilege of having 100 television channels that usually aren't worth watching.  I represent a small, new trend of what are called "cord-cutters."  Cord-cutters are those who choose broadcast TV and broadband internet over a multichannel provider.

According to Nielsen, the number of broadband/broadcast only U.S. homes is on the rise, but still a small number representing only 5% of total TV households.  Yet the trend can't be ignored – the number of households without a multichannel provider grew by 22.8% in 2011.  These numbers could be reflective of an economy still in recession or a change in how we choose to watch content programming – or a combination of both.

To be sure, there are drawbacks to cord-cutting. For instance, if you are a sports aficionado you are not likely to cut the cord because it is very difficult to watch local sports teams without cable. Cord-cutters have to wait a season or two, or longer, to stream popular programming while relying on water cooler conversations to get updates on the latest cable shows.  HBO Go, HBO's online streaming service, streams unlimited HBO programming but only for HBO cable subscribers.  No wonder the Take My Money HBO campaign collected 163,736 signatures 48 hours after launching.  The campaign asked HBO to sell HBO Go as a separate entity without the need for a multichannel provider.  HBO quickly responded with a thank you for the love, but no thank you.

Now for the good news for cord-cutters.  The online outlets that facilitate cord-cutting are starting to produce their own, high-quality content. This means no more waiting, and no more cable subscription requirements. Netflix, with over 27 million U.S. streaming customers, recently released the critically acclaimed series "House of Cards," starring Academy Award winner Kevin Spacey, and creating lots of buzz about the future role of online outlets in mainstream content production.  Some have said that Netflix will be the next HBO if it continues to release quality original programming.  I'm not sure if Netflix is the new HBO, but its recent path could be a game changer.  Netflix is scheduled to release more original programming soon and we will see if "House of Cards" is a commercial success for the company.  (Full disclosure, I'm a subscriber and big fan of Netflix's $7.99 monthly membership.  It's improved the quality of programming that I get to watch at home on my digital television with my Roku player.  I don't miss cable at all!)

At the same time, traditional cable providers are continuing to raise prices. The L.A Times recently wrote about Time Warner Cable's recent price hikes.  According to the L.A Times article, Time Warner Cable subscribers have been notified that the monthly cost of basic cable service will jump 8.2%, or almost four times the annual rate of inflation as of October 2012 — to $72.50 from $67.  It seems that Time Warner Cable may want its customers to help pay for the huge sport deals it recently closed with the L.A. Dodger and L.A. Lakers.

Although the majority of TV households, 90.4%, still pay for a TV subscription, the recent trend of cord-cutting may be an indication that the price elasticity of demand for cable TV is being impacted by new choices in online streaming.