CLIP When Will Comcast Need To Worry About Hulu?

Comcast, the biggest U.S. cable company, is losing TV subscribers. Last quarter, for instance, it lost 233,000.

Why? Two big reasons: The housing market stinks and competition is heating up from phone companies like AT&T (T) and Verizon (VZ).

But Comcast has another problem, too. It's starting to get disrupted by online video sites like Hulu, which provide most of the shows worth watching on cable -- without the $80 monthly bill.

Anecdotally, many of our friends have cut the digital cable cord in the last year, and we have too. Why? One reason is to save $80-$100 a month -- digital cable with HD, DVR, etc. is just too expensive. But a second reason is that most of the shows we want to watch are now online for free on Hulu or for cheap on Apple's (AAPL) iTunes.

We are in our 20s and 30s, live in big cities, aren't really TV people, and don't spend much time at home. But we used to pay $80 per month for cable. And now, when we do want to be entertained, free services like Boxee and Hulu (and cheap services like Netflix) do just fine.

Comcast said today that sites like Hulu haven't become a major problem yet.

"We're not seeing large numbers of people dropping their television service due to either financial hardship or the fact they can get video increasingly on the Internet," Comcast COO Stephen Burke said on this morning's earnings call.

Why not? We think that while some people are happy watching some TV on their computers, most people still want to watch on their TVs. This is where Comcast and other cable operators have an advantage: Digital set-top boxes in millions of homes -- capable of accessing much of the same content that's on Hulu.

Comcast, for instance, had 17 million digital cable customers at the end of last year, which had an average 1.6 digital set-top boxes per home. And, as Burke bragged, Comcast's video-on-demand service (VOD) has "a huge amount" of the "very attractive product" that's on Hulu and other video sites, such as NBC, ABC, and CBS shows. Cable companies like Comcast also have some other advantages, like live sports and a pipe devoted to video that they own.

But they're also at risk for disruption. So far, none of the services out there -- Hulu, iTunes, Netflix, etc. -- offer everything cable does. But they're getting closer. And when you're Comcast (CMCSA), and 60% of your revenue comes from selling cable TV, that could become an expensive problem.