For several quarters now, the bear argument against Netflix (NASDAQ:NFLX) has gone more or less as follows: Being the first mover into video streaming has given Netflix an edge, but as more and more networks launch their own streaming platforms, Netflix's advantage will be eroded.
This logic assumes that competitors like Amazon (NASDAQ:AMZN) Prime, Hulu, HBO Now, Showtime, Sling TV, and others will draw viewers away from the leading streamer, as they buff up their catalogs and pitches to streaming subscribers. The bears see streaming competition as a zero-sum game, where services are fighting for subscribers who will choose only one or two services.
A recent survey from RBC Capital Markets, however, seemed to disprove this theory. The survey of Netflix subscribers in the U.S., the U.K., and Brazil found that subscribers to Amazon Prime, which offers its own free streaming service, were actually more likely to subscribe to Netflix than non-Prime members:
As the chart above shows, 68% of Prime members were also Netflix subscribers, while just 51% of non-Prime members subscribed to Netflix. In other words, an Amazon Prime membership is positively correlated with a Netflix membership, exactly the opposite of what the naysayers are claiming. It turns out that Netflix and Amazon -- and likely other streaming services -- aren't an either/or proposition for customers, but a both/and.
Hastings told you this already
This shouldn't come as a big surprise to Netflix investors. CEO Reed Hastings has always argued that the Internet TV pie was big enough for multiple parties to share, and that the real opportunity was in breaking up linear TV and the traditional cable bundle.
Here's what Netflix's "Long-Term View" manifesto has to say about competition:
Because the entertainment market is so broad, multiple firms can be successful. For example, HBO is now growing faster than in years past, while our business is also expanding. Many people will subscribe to both HBO and Netflix since we have different exclusive content. The transition to Internet TV, with its greater consumer satisfaction, will mean growth for many Internet TV services.
That prediction has turned out to be accurate thus far. Netflix has added members at the same time as HBO and other competitors, while cable and satellite TV providers are losing them. At a conference last year, Hastings predicted that Internet TV would grow each year for the next 20 years, while linear TV would decline. That transition will favor Netflix and a host of other companies.
The price is still nice
The other thing the bears forget is that at $10/month, Netflix is arguably the best bargain in entertainment. Not only is it cheaper than almost every other streaming option, but with the average viewer watching an hour and 40 minutes a day, according to Netflix tracker AllFlicks, they're paying just $0.20/hour for the pleasure.
By contrast, the average cable package costs Americans $99/month You would have to watch more than 16 hours of cable a day to get the same value as viewers get from Netflix, a virtually impossible task.
Not too long ago, all $10/month would get you was two rentals from the local Blockbuster. Consumers know that Netflix is a great value, and as the RBC survey shows, they're willing to pay for multiple services to get the convenience and the programming that they want. For the price of cable, they could afford Netflix and nine other streaming services.
For Netflix, then, it's clear that streaming isn't a zero-sum game. The addition of new streaming services arguably even helps the company, by convincing more Americans to give up cable.
Jeremy Bowman owns shares of Netflix. The Motley Fool owns shares of and recommends Amazon.com 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.