Executives at Time Warner Cable (NYSE: TWC), Comcast (Nasdaq: CMCSA) and privately-held Cox Communications have taken their customers for granted for far too long.

Even as consumer income has barely kept up with inflation in recent years, cable bills soar ever higher. Here in upstate New York, Time Warner gets $130 from me every month so I can get high-speed Internet access, a DVR and far more channels than I ever bother to watch. I have long vowed to cut the cord, as soon as it was practical.

That day is finally here. Technologies are rolling out that will expand consumer’s choices. And most ominously for those big cable companies, many of those choices will be either free or far cheaper.

Breaking it down
As I look over my monthly cable bill, a few things stand out. I like to record shows and watch them when it’s convenient. Time Warner charges me $13 a month for the service. Trouble is, to get a DVR, I also need to get digital cable ($7) and the “Standard Service” ($43), which is largely comprised of obscure channels that I’ll never watch. So my DVR really costs $63 a month. Yet on a recent trip to Best Buy (NYSE: BBY), I found $250 DVD players with massive hard drives built in, capable of recording dozens of hours of programming. I could ditch my DVR and the unwatched hundred extra channels, downgrade to the basic $14 cable TV programming, and recoup my investment in just four months. After that, it’s just pure savings.
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#-ad_banner-#That DVD-with-a-hard-drive is just an interim step. Soon enough, Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG), Amazon.com (Nasdaq: AMZN) and Sony (NYSE: SNE) will deliver my favorite TV shows to me through a web connection, bypassing the need for a cable box. They’ll start slow, but eventually create truly viable alternatives. For example, Apple just announced plans to show certain TV shows for just $0.99 an episode. That’s still pricey, but look for costs to come down and the number of shows available to expand over time. As an even cheaper alternative, you can wait until after a season has ended and get the DVDs from Netflix (Nasdaq: NFLX) for a nominal cost (I’m just now watching the last season of Dexter as the new season ramps up next month on Showtime).

As for Google, consumers need to simply wait for the next generation of Internet-accessible TV sets to start hitting showrooms this fall and into 2011 (another reason that I’m a fan of Best Buy). [Read why it’s also “George Soros’s Favorite Retail Stock”]  Once those TVs come into your living rooms, Google will more aggressively roll out a TV offering either this fall or sometime during the winter.

The company intends to capitalize on its Android Software, which will allow for a common user interface between its web browser, smart phone operating system and the next generation of TV sets. Google is currently negotiating with Hollywood studios and the broadcast networks, and it needs to assure them that profits without the cable middlemen can still be robust.

Meanwhile, Amazon is working on a new subscription service that would deliver TV shows and movies over the Internet, according to The Wall Street Journal. That service might focus on offering delayed content, which is less threatening to the networks and studios. That’s fine for consumers like me that need basic cable for real-time news, weather and sports, and are willing to wait a bit to see everything else. Sony, looking for a content strategy that ties its PlayStation, web-enabled TV sets, Blu-Ray DVD players and other devices together, is said to be planning a similar service to Amazon.

Action to Take –> The cable companies will tell you that they’ve heard all this before. Services like Hulu and SlingBox have barely made a dent into their customer bases, but they don’t have the muscle of Apple, Google, Amazon and Sony.

Time Warner Cable and Comcast appear to be boosting sales at a +4% to +5% annual pace, thanks entirely to price hikes that offset a slowly shrinking customer base. As the tech giants noted above start to steal customers at faster pace, price hikes will appear unsustainable. That could well start a trend of ever-shrinking revenue.

A similar theme has already been playing out among the phone companies. Verizon (NYSE: VZ) has already seen its shares drop by a third during the past three years (and they would have fallen more were it not for the still-strong half-owned Verizon Wireless unit). AT&T (NYSE: T) also peaked in late 2007 and has fallen by a similar amount. The cable companies increasingly appear to be relics of a previous age.