Amazon's (NASDAQ:AMZN) on-demand Prime Video and its movie/television show rental service have grown in popularity, making the company's dual efforts fitting rivals for Netflix (NASDAQ:NFLX) and Apple's (NASDAQ:AAPL) iTunes.
While Netlix's on-demand services are still used most frequently by the streaming service's subscribers, a survey from Consumer Intelligence Research Partners showed that Amazon Prime members use both the free Amazon Prime and paid Amazon Instant Video offerings combined slightly more frequently. In addition, Amazon users also rent or buy video slightly more often than iTunes customers do.
CIRP estimates that on average, Amazon Prime members use the free streaming video service 8.3 times, also buying or renting video from the Amazon Instant Video service an average of 5.1 times per month. That gives Amazon's services a total of 13.4 user interactions per month, while Netlfix, with its pure on-demand model, garners 12.7 per month, and iTunes sees customers rent or buy video 4.9 times each month.
"Not surprisingly, subscription services enjoy much more frequent use," said CIRP partner Josh Lowitz. "At least 80% of Netflix and over half of Amazon Prime members watch at least one streaming video per week on these services, compared to about one quarter of iTunes customers. Almost half of Netflix members use Netflix more than five times per week, compared to under one quarter of Amazon Prime members and only 11% of iTunes users."
Netflix still has the most devoted user base, but Prime Video has made some impressive gains. That may be a testament to the improvements Amazon has made to its video library. Though Netflix still has more signature original shows with a following, Prime has built buzz for Transparent and other originals. In addition, the company has improved its on-demand library through deals with HBO and A&E, among others.
Best of both worlds
Amazon has made it easy for customers by offering a subscription service and sales/rentals on the same platform. While Netflix is purely subscription-based, and iTunes is strictly sales and rentals, Amazon offers both in a side-by-side fashion. Searches on Amazon.com or through the company's Fire TV streaming players show Prime members their free streaming options alongside sales and rentals.
The voice command on Fire TV makes it especially easy, as saying "George Clooney" brings up a list of all available films and shows starring the actor. Whether it's the option to rent "Gravity" or stream "Facts of Life" episodes for free, all of the choices appear in the same place.
"Amazon cleverly offers both a subscription and a single-pay service" said Mike Levin, CIRP partner. "Amazon Prime customers use the free streaming video that they receive with their membership somewhat less than Netflix members use their service. But, Amazon Prime customers also buy or rent additional video using Amazon Instant Video, say, when a video is not available on the Prime streaming service.
By offering both types of services, Amazon has made it easy for customers. Yes, Netflix has shows Amazon doesn't, but Prime Video offers plenty to keep people tuned in. And, if something is lacking in the on-demand area, a customer will certainly choose to press a single button to rent it or buy it over going to iTunes, and may even do that without checking to see if it's on Netflix.
Amazon has an untapped audience
The best news for Amazon may be that is has two sources of user growth which should help it maintain its momentum. First, the online retailer added 10 million Prime subscribers over the holiday season by giving them one month free. About seven in 10 of those will convert to a year-long paid subscription, according to an earlier CIRP report.
In addition to the new customers flooding into Prime, Amazon still has a large base of existing paying customers who do not yet use the video service. While the retailer does not release these numbers, a Bernstein Research survey in July, 2013 found that 29% of Prime subs don't use the video option, Variety reported.
Will people drop Netflix?
The strength of Amazon's video offerings has already made it a viable option over iTunes for sales and rentals, but it has yet to cause very many people to drop Netflix. The streaming service has seen steady subscriber growth jumping from 31.71 paid U.S. member in Q4, 2013 to 37.7 in Q4, 2014, according to its most recent quarterly report.
When Prime Video launched, it was pushed as more of a bonus for Prime members than a Netflix competitor, but Amazon has steadily improved the service. The company will likely never spend nearly as much as Netflix does on content. But Prime's improvement from a "good enough" service to a pretty good one may cause some people to at least consider whether they need both.
Amazon has yet to truly threaten Netflix, but it has the advantage of being perceived as free from customers who paid their $99 annual fee because they want free two-day shipping. That, coupled, with an improving library and some buzzed-about originals could make it a viable option going forward.
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Daniel Kline owns shares of Apple. He is a Prime member who has never watched a Prime video and a Netflix subscriber who rarely remembers to use the service. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.