Major studio and network owners’ decision to sell shows to Netflix might go down as one of the biggest strategic blunders they’ve ever made, if Bernstein Research’s Todd Juenger’s compelling report today is correct. Like a lot of analysts, he’s alarmed by what he calls the “unprecedented” drop in C3 ratings across ad-supported TV,  especially among 18 to 49-year-olds. He figures that the 4% decline in total day TV viewing vs the same period last year equals about 13 minutes per day. And he concludes it’s not a blip: They’ve gone to subscription video-on-demand services led by Netflix and its shrewd CEO Reed Hastings. Its viewing has increased about 12 minutes a day, to 95 minutes, as its audience has grown and each subscriber spends more time with it.

So — contrary to the party line in media — Netflix viewing is a substitute for traditional TV, not a supplement. And “we don’t think those viewers are coming back. The trend is more likely to accelerate than decline,” Juenger says. That means Big Media companies are screwed. They can “stop licensing to SVOD, or face years of declining audiences.” But if they stop licensing, then that “would cause a material drop in immediate earnings” — which investors won’t accept. That’s why Juenger believes they’ll continue to play a short term game and “increase the amount of content they license to SVOD, to make up for the lost advertising revenue. Which will only make the problem worse.”

But wait: Wasn’t the recent drop in TV ratings mostly due to Nielsen’s slowness to count people who still watch mainstream TV but on tablets and smartphones? Juenger says no. “Nobody’s going to sit on their couch and watch video on their cell phone while keeping their TV set turned off. Most of this viewing is very likely to have come from ‘found time’when the main TV screen is not accessible or is already on.”

How about the growing use of DVRs or VOD? Again, no. Although DVR penetration is growing, that’s been “offset by declining usage.” (Early adopters are usually most enthusiastic about a technology.) And VOD still accounts for less than 1% of total viewing. “So even huge increases would not have a significant impact on total viewing.”

Juenger says that Disney, Fox, Time Warner, and Discovery are probably OK for now. He’s less confident about AMC Networks, Viacom, CBS, and Scripps Networks. The last three “have the most exposure to U.S. advertising revenue, and therefore are most exposed to the SVOD risk.”