Precedent set by media companies could hurt cable distribution companies

In the previous part of this series, we discussed how media companies such as Time Warner (TWX), HBO, and CBS (CBS) have started to give access to their shows through online streaming. This action from these companies could prompt other media companies to follow suit. Although this is good news for consumers—who will get to watch their favorite shows online at cheaper prices—cable distribution companies will lose out.

This precedent could actually strengthen the cord-cutting phenomenon. “Cord-cutting” means viewers have stopped subscribing to traditional TV packages and are shifting to online video streaming providers like Netflix (NFLX) to save costs. Cable distribution companies are already suffering from this phenomenon as the pay-TV market continues to lose subscribers in the U.S.

Will media companies moving online affect cable companies?

Pay-TV market continues to lose subscribers

According to research firm SNL Kagan, cable, satellite TV, and telecom providers collectively lost 251,000 pay-TV subscribers in 2013. Cable companies such as Comcast (CMCSA) and Time Warner Cable (TWC) have been losing pay-TV subscribers at a faster pace than the overall pay-TV market.

But the pay-TV market’s loss has been Netflix’s gain. As the chart above shows, Netflix continues to gain subscribers at a rapid rate—reaching ~36 million paid members in the U.S. in 3Q14.

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