They call it video cord-cutting, and if you own cable stocks, you should understand what it means because it's bad news.
Cutting the cord means getting rid of subscription TV or paring back the number of premium channels you pay for. There was a time when cable revenues were as reliable as morning sunrises - no one wants to lose their cable so they always pay - but that era appears to be drawing to a close.
In the second quarter of this year, U.S. television distributors - cable and satellite, as well as phone companies that offer television - lost 216,000 subscribers, which raised eyebrows because it was the first time the subscriber count had fallen. Then it happened again the next quarter, with a loss of 119,000, according to SNL Kagan, a market research firm. The third quarter usually brings the biggest gains - a year ago, the subscriber count went up 346,000.
To be clear, this is industry-wide; the losses weren't the result of coach potatoes switching from cable to satellite. They just disappeared.
That's not a lot of people given the tens of millions of subscribers. And it's easy to argue that this is just the product of high unemployment. But I don't buy it.
I think this is the beginning of a trend that will look like what happened to phone companies when people started cancelling land lines in favour of cellphones.
In this case, the substitution is from cable or satellite to Internet broadcast.
I've done it myself, cutting the cord a couple of months ago. My cable bill was $120 a month - for every channel - promptly paid to Shaw. This is high margin revenue. But because I almost never watched TV - there were only a couple of shows worth watching and they were never on when it was convenient for me - I got rid of cable.
Instead, I bought an Apple TV, plugged it into my TV and started buying shows and movies over the Internet. The economics work. The computer cost about $150, and that's one-time. And a full season of my favourite show (with no commercials, which is worth a lot) is $60. Movies? You can rent them from Netflix or iTunes for next to nothing and buy them for $15 or $20 (and it's easier to do it over the Internet than using the cable box in my experience). So do the math: I was spending almost $1,500 on cable plus whatever movies I bought on demand. Now? A lot less, but I don't watch much TV.
Being an upstanding citizen, I pay for all my content. A 29-year-old pal and all his friends don't: They download pirated shows (and other things) for free. All they need is a high-speed Internet connection, which might come from the cableco or not.
I don't think this phenomenon is strictly about income. It's also about age. Another acquaintance, aged 30, runs a profitable gold company. He doesn't pay for any broadcast content.
Revolutions always start with the young and the poor, and I think this is going to be a big problem for satellite and cable companies.
Canaccord Genuity's man on telecoms, Dvai Ghose, agrees. "Younger folks I know laugh at my enormous cable bill," he says.
This is a big challenge for Canadian cable firms and Bell over the long term. Even live sports, which you can't easily get over the Web, will factor into the equation as leagues like the NHL or NFL use their websites to sell live broadcasts to viewers.
There are potentially mitigating factors. Mr. Ghose points out that most Canadian cable companies impose bandwidth caps that make heavy downloaders pay more. They're also pushing video on demand. That said, video distributors "generate billions of dollars collectively from cable and satellite TV and won't be able to make this up, I believe, in additional Internet revenue."
Telus, he says, is an exception as it has little video revenue and an Internet TV offering that might benefit from what I suspect will be accelerating changes.
In any case, investors should tread very carefully. This once reliable business model is in jeopardy.