Why Netflix Users Cut the Cord: Cable Isn't Worth What It Wants

Last Updated Jun 15, 2011 10:20 AM EDT

Netflix (NFLX) customers that stream media are increasingly ready to drop or reduce paid television services: 32 percent ready now, compared to 16 percent last year. That has the pay TV industry worried.

For good reason. Neither Netflix nor cable companies will admit this publicly, but they all know that many consumers are either cutting back on paid television services or bailing completely. As Peter Kafka at All Things Digital notes, the cable guys are largely in denial -- even on background, it's the other guys who will get hurt, not them. News flash: They're all in trouble. Not because of Netflix, but themselves. Because Big Paid TV insists on maintaining an historic fat and happy status, it's about to become a relic.

They're mad as hell and not going to take it any more
Anyone who has cut their cable or satellite service -- and I speak from recent experience -- knows that Netflix is, at best, an enabler. Completely blaming the shift on the economy and belt tightening misses a long term industry dynamic: Online streaming taps into an anger that consumers have felt for years.

Too many pay high rates to find precious little they want to watch, no matter how many channels get funneled into their sets. The providers nickel-and-dime them for everything, artfully grouping channels to force people into higher levels of service. ("Oh, you want Sundance and the Independent Film Channel? You'll need our MegaDose package.")

If you call to say you don't see the value, the price suddenly drops for some time as the provider tries to suck you back in. I actually got a one-third off from DirecTV for six months, then a lesser discount for a couple of months, and finally an offer of the original discount for a year. But it was too late.

No, Virginia, cable isn't indispensable

No one likes to be a cash cow. BPTV has been able to pull off its status through a strategy of scarcity. If you didn't have a subscription, then you couldn't see anything. But the industry has miscalculated because it saw itself and first run video as indispensable. They're not. Much programming consists of reruns anyway. Why not get them from a streaming service and discover some gems that you'd never have otherwise known about?

Really want to see something new? If you can't tune in through a streaming-enabled Blu-ray player or Roku box , connect the output of a PC to the television, go to the appropriate channel web site, and play an episode or two in full-screen mode. It doesn't even take that high a bandwidth connection. (We manage with low-end DSL.)

If cable, satellite, and fiber television providers want a long-term future, then they need to wake up and understand the new dynamics. But that means a different approach to programming, either setting prices to what consumers are willing to accept or allow people to choose from a menu of channels, paying only for what they use. The companies won't do that, as it means lower revenue.

Instead, they're trying to limit consumer choice, particularly by capping cable bandwidth. Yeah, that's going to work until it drives call to Congress. Suddenly, net neutrality will take on a new life among even former foes worried about reelection.

Ironically, to protect their bottom line, the providers take actions that ultimately will cause their bank accounts to implode.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.