Life Without TV

Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Can you live without TV?  How ridiculous.  Of course you can!  But do any of us want to?  Ah, that is the real question isn't it?  Last year, according to a survey, people in the United States ages 15 and over watched TV an average of 2.8 hours a day.  This means that over 10% of the time, we are sitting on the couch in front of the tube.  It's pretty apparent that we are quite attached to our televisions.

While researching an article for Zipcar, I discovered that some people believe that Americans are shifting from being big spenders, and are learning how to cut back unneeded expenses in life.  People don't want to be tied down by possessions.  They want to get out of debt.  They want their money to work for them.  These aren't people who don't have the money to spend on certain luxuries.  These are people who are willfully choosing to trim back their expenses.

Naturally, when I came across an article entitled "Four Expenses You Can Live Without," it caught my eye.  What would this particular author state are things we don't need?  The first thing on his list is cable television.  Now the question I ask myself is:  if the author thinks you can cut out cable, will majority Americans follow suit?

Television

If people are looking for things to cut out of their monthly budget, and people start feeling like cable TV is a good place to start, then we should expect companies like Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) to be negatively impacted.  But does the data support this?

A few months ago, Time Warner revealed that it had lost 169,000 video costumers.  Comcast is having a hard go at it as well.  In 2011, they lost 460,000 net subscribers.  In recent months, Comcast claims that the attrition rate is greatly improving, but they have already lost a substantial amount of customers over the past 3 years.

This isn't just about cable television providers.  Satellite providers don't seem to be immune to losing customers either.  DISH Network (NASDAQ: DISH) lost around 10,000 customers earlier this year.  This was a smaller loss than they expected, but it is still a loss.

Interestingly, profits are increasing for these companies.  They have figured out a way to keep profits good for the time being, despite having fewer customers.  However, if these companies keep shedding subscribers, will they be able to continue to grow profits?  It seems like this will catch up to them eventually.

Alternative

Some suggest that people are trimming the high monthly subscriptions fees of cable and satellite providers and are turning to more frugal options such as Netflix (NASDAQ: NFLX) and Amazon (NASDAQ: AMZN) Prime services. Both Netflix and Amazon allow people to consume television and movies, but the price tag is a lot smaller.  The data supports many people are leaving cable and satellite, but does the data support people turning to services like this?

As of writing this, I am still waiting to hear how Netflix did for the 3rd Quarter, but so far Netflix has been losing a lot of subscribers since they made the shift from DVDs to streaming a while back.  While streaming customers have been growing by a very good rate, net costumers are down.  It's important to mention that this shift has been expensive for Netflix with net profits falling like a lead balloon.

When it comes to Amazon Prime, we don't really know how many people subscribe.  We know that the people using the Amazon Prime shipping service is increasing, but that's about it.  This would seem to indicate an increase in Amazon Prime subscribers, but it's not certain.  But what I find more interesting is the amount of Kindle Fires being sold.  We're still waiting for a couple of the Kindle Fire models to be released, but some estimates say that Amazon has 5 million units they have ordered in hopes of selling.  Your new Kindle comes with a free month of Amazon Prime.  This device is a stepping stone device.  Amazon is willing to sell you a device near or at cost, so that you will in turn consume what they have to offer.

It's no doubt that Amazon Prime is a fantastic deal.  What you get for that yearly fee is ridiculously good.  Amazon hopes that by giving customers a free month, which will increase their odds of continuing the service.  Could people decide to cancel their traditional television service in favor of Amazon Prime?  I think it's very possible.

Foolish Conclusion

If these trends continue, I would become increasingly leery of investing in cable and satellite.  I haven't been a fan of investing in Netflix ever since they changed their primary business, and I have never liked Amazon's P/E ratio, but it could be that these two companies are doing what they need to do in order to be able to take advantage in a shift in consumer trends.

I'll be watching very intently on Netflix's 3rd Quarter subscriber announcement, and I'll also be tuned in to how many Kindle Fire HDs Amazon is able to sell before the end of the year.  Significant movement in these areas could signal a buying opportunity.


thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Netflix. Motley Fool newsletter services recommend Amazon.com and Netflix. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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