Cut Your Cable and Invest in These Companies

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

Cable subscribers are wising up to the idea that the internet will one day satisfy all of their entertainment needs.  With the growing options available, it’s not surprising users are starting to cut the cord.  According to estimates, about 2-3 million subscribers have canceled their cable subscription since 2008.  That's a small percentage compared to the 103 million cable subscribers, but it's a growing trend.  Are these early adopters telling us something?    

I’ve argued before what cable companies will do to maintain control.  But I also believe they will inevitably have no choice but to embrace this behavioral shift.  Let’s think ahead to see which companies will benefit from cutting the cord. 

Here are 5 companies that will capitalize on this trend:

  1. Apple (NASDAQ: AAPL), because it sells devices that integrate flawlessly with the iTunes video store.  Every line of Apple’s iDevices offers a model that has AirPlay capabilities, meaning it can stream content wirelessly to an Apple TV.  When you cut the cord, the Apple TV will replace your cable box and your iDevice will act as the portal to internet streaming.  Standalone, the Apple TV gives you the ability to access the iTunes store, Netflix, Hulu Plus, YouTube, as well as the Wall Street Journal.  And that’s not all.  Sports fans can choose to access every baseball, basketball, and hockey game through their Apple TV. 

    With the Apple TV, you aren’t sacrificing much in the way of cable.  I like to think of it as “a la carte on-demand,” because you are essentially on the same release schedule as traditional on-demand.  The only difference between them is you don’t need to pay a subscription to have access to an on-demand library. 

    By now, I’m sure you’re aware that a full-fledged TV is on the horizon for Apple.  But until this materializes, it’s difficult to know the exact implications.                       
     
  2. Google (NASDAQ: GOOG), mainly for YouTube.  Let’s face it.  Online video is a megatrend in the making, and YouTube is the gargantuan in the room.  Users stream well over 13 billion videos each month in the US alone.  The monetizing opportunities are beginning to grow and advertisers are taking notice.  Cutting the cord may accelerate this trend because users can replace channel surfing with YouTube binges.   

    Looking much longer term, Google Fiber is shaping up to be a direct competitor to cable.  It’s going to offer significantly faster internet speeds and a similar cable experience for a better price.  Between YouTube and Fiber, it’s clear that Google has aspirations to steal share and advertising dollars away from cable companies.

  3. Hands down, Netflix (NASDAQ: NFLX) is still the best internet steaming platform available.  The proof is in the pudding.  Their service now accounts for 33% of all bandwidth.  This success has invited intense competition, but so far Netflix has the early international lead, which is crucial to their long-term success.

    The plan is simple: aggressively funnel earnings into new international markets and be first.  Sometimes being first is what’s needed for success.  It also helps that customer satisfaction is on the rise, Carl Icahn is on board, and management is delivering in a predictable manner.  Just don’t count on shares being as predictable as management.  Also, be sure to keep an eye on future content liabilities, because it may put Netflix in a compromised position.                    

  4. Amazon (NASDAQ: AMZN), for buying your devices and streaming videos.  Whatever internet media device you buy, Amazon wants your business.  Better yet, they want to sell you a highly affordable Kindle tablet, paired with an Amazon Prime membership.  That way, you can stream videos from their rapidly growing library.

    If they had to choose between market share and net profit, they always go with market share.  It’s been a key driver of revenue growth, which has grown 35% on an annualized 5 year basis.  Net profits haven’t been as fortunate and long-term profitability remains a big question mark.  Investors have shown a willingness to wait for profitability, but pray that revenue growth doesn’t stall.                          

  5. Time Warner (NYSE: TWX), because it’s only a matter of time until they introduce HBO Go as a standalone product.  They’re gearing up for Scandinavian launch in the coming months, which will serve as a dry run.  If all goes well, I would expect the US to follow suit shortly thereafter.

    HBO has tremendous brand equity in terms of delivering premium original programming.  Offering this product without a needed cable subscription is a game changing proposition.  It will give subscribers less incentive to sign up for cable.  

    Longer term, I envision this could set a precedent where all the premium networks offer their programming directly to consumers.  They could either build their own service like what HBO has done, or simply offer it on Netflix or Amazon platforms for an added cost.  A la carte programming anyone?                      

Reinvest the Difference
Cable subscribers who cancel today stand to save about $600 per year, a number that is seen rising in the years to come.  In eight years, the average cable bill is estimated to cost $200 per month.  Even at this sticker shocking rate, cord cutters would still save $1,200 per year.  This assumes cable internet access increases to $100 per month to mitigate the loss of revenue.  

If you cut your cord today, you’ll save $4,800 in the next eight years.  Invest the savings and it could have a big impact on your financial future.           

In the end, technology makes a compelling case for disrupting traditions.  This feels eerily similar to when the music industry was resisting the digital revolution.  If that’s the case, the best has yet to come for consumers, and the companies mentioned should benefit nicely.        

Know What You Own

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TopDownTrends owns shares of Google. The Motley Fool owns shares of Apple, Amazon.com, Google, and Netflix. Motley Fool newsletter services recommend Apple, Amazon.com, Google, Netflix, and Time Warner. 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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