According to a leading market research firm, Americans watched an astounding 31 billion videos over the Internet during a recent 30-day stretch (November, 2009). The sheer volume speaks to the growing allure of the web as a conduit for video entertainment. The viewing statistics further beg the question - does video-streaming and downloading over the Internet pose a serious threat to traditional content distributors, such as cable companies and satellite broadcasters?

On the surface of things, cable executives still shouldn’t lose much sleep. While a weak economy and the housing sector’s downturn have pressured video-subscriber growth of late, there is little evidence that the free movies and shows offered through ad-supported sites like Hulu [which is jointly owned by NBC Universal, News Corp. (NWS), Walt Disney (DIS), and Providence Equity Partners] have prompted cable subscribers to cut the proverbial cord. Moreover, at a time when an increasing number of people are watching web-streamed videos on their computers and smart phones, cable viewership (as measured by average number of viewing hours per subscriber per month) has also been on the rise. The data suggests that Internet streaming is not encroaching established content delivery franchises. Rather, Internet streaming, to some degree, appears to be creating incremental demand, as more and more people are watching web videos through such sites as Google’s (GOOG) YouTube (by far the most popular destination for web viewers) during less-traditional viewing hours, be it at the office during work or on the bus on their daily commute.

Distributors do risk losing content, as networks and film studios ultimately look to market programs and movies directly to viewers through the Internet. Indeed, Comcast’s (CMCSA) recent decision to purchase NBC Universal (including leading cable networks USA and Bravo) is partly viewed as a hedge against direct delivery. Still, the economics of the direct delivery model, particularly with respect to advertising dollars, so far makes less sense. (On-line ad rates are generally well below those for cable.) Plus, it appears that major content providers are buying into the status quo through initiatives with cable companies, such as TV Everywhere [which involves Comcast, Time Warner Cable (TWC), CBS (CBS), and others] that will make popular programming more widely accessible (to existing cable customers) and blunt the competitive threat from upstarts.

All in all, we suspect cable companies will increasingly embrace Internet streaming as a means of defending their competitive positions, versus new video services offered by the likes of Verizon (VZ) and AT&T (T), and to better meet evolving viewing habits occasioned by the ongoing roll-out of new electronic gadgets. Whether that translates into higher revenues and larger profits remains to be seen.