Tuning out

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Google and Apple Are Killing Cable TV

Entrenched cable companies Comcast (CMCSA) and Time Warner Cable (TWC) are having a pretty good year, with both stocks posting market-beating returns thus far in 2013.

Bigger-picture, however, these companies are in big trouble. Cable TV continues to decline while tech giants like Apple (AAPL), Google (GOOG) and others continue to disrupt the industry.

The numbers tell a pretty disappointing story when it comes to cable TV. Consider that in its last quarterly earnings report, Comcast lost 60,000 cable customers, and since 2008 its video customers have fallen every year from 24.2 million to 22 million in the same period — a 9% decline in five years.

That’s partially thanks to the rise of streaming video services; Netflix (NFLX) now has about 30 million subscribers to top HBO, and Amazon (AMZN) is making big inroads with its Prime on-demand streaming service.

But it also has to do with the fact that cable TV is a bit of an anachronism. The idea of a cable coming out of a wall into a single-use device seems pretty quaint considering the variety of content-streaming options in the digital age. Virtual monopolies in many cable TV markets are keeping prices steep, and package “deals” force consumers into buying dozens of channels they don’t watch, so it’s no surprise the “cord cutting” revolution is gaining momentum.

It’s going to be a long, slow bleed before these trends eat away at the cable empire of Time Warner Cable and Comcast, however. Execs at the companies are concerned, yes, but hardly panicking. TWC has $3.5 billion in cash and short-term investments and an operating cash flow close to $1.7 billion a year — hardly a corporation at risk.

But disruption is on the way with tech leaders like Apple and Google leading the charge.

Chipmaker Intel (INTC) is forging ahead with “Internet cable” plans, developing a set-top box for release this year that streams content to your TV. Microsoft (MSFT) and Sony (SNE) are rumored to be exploring similar hardware. And on the content side, Google is currently trying to license TV channels for an Internet cable service, according to insiders. Apple also is rumored to be toying with the space.

These plans would create a pretty powerful alternative to the current cable television options most people have — and accelerate the death of cable TV as we know it.

Of course, any Internet TV plans need support from the channel owners, and that is no easy task. Support for the new model has been, at best, lukewarm.

However, there is a rush to figure out how consumers are going to consumer video content in the future, and you can be sure that Google, Apple and other tech giants are going to get there eventually.

Comcast and Time Warner, on the other hand? Probably not.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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