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Though they share many traits, perhaps the most important characteristic in common between Netflix (NFLX +0.99%) and Amazon.com (AMZN +0.01%) is their rivalry in the booming market for streaming entertainment. More so than any two other companies, Netflix and Amazon have pioneered the rise of digital video, a trend whose impact on the entertainment and cable industry continues to play out.
Who will win the streaming wars? We recently put that question to The Motley Fool's roughly 634,000 Twitter followers.
Of these two, who will win the online video streaming battle over the next 5-10 years?
— The Motley Fool (@themotleyfool) September 3, 2016
Although Netflix beat Amazon by 19 percentage points, neither company won a majority of the votes from our followers. Given the fragmented responses from this survey, let's review the arguments for Netflix, Amazon, and both companies as the potential winners of the streaming wars.
The case for Netflix
Netflix claims the crown of most innovative company in streaming for two meaningful reasons. First, it pioneered the large-scale shift to streaming media in 2007, four years before Amazon launched Prime Streaming Video. Second, it led the move into original content, with the launch of House of Cards in February 2013.
Past performance doesn't predict future outcomes, but Netflix's long history of leadership and innovation in the streaming market makes it the current leading contender to win the streaming wars. The company remains a top attractor of talent, and its unique corporate culture and long-term view also make it a strong contender to continue dominating streaming media.
The case for Amazon
Though it has followed Netflix in shaping streaming media, Amazon is a strong challenger because of its combination of a powerful streaming value proposition and its own legacy of innovation.
Amazon's streaming service comes as part of its Prime subscription service, which also includes benefits such as free two-day shipping on all Amazon.com orders. Its place as part of the Prime service gives Amazon the financial flexibility that Netflix lacks, as Amazon can support Prime streaming through its other operating segments. However, not that many Prime subscribers use the service for its streaming benefits -- only 47% of Prime users stream Amazon's content, according to estimates from researcher CIRP.
However, with their well-defined business models, which both feature a hybrid of original content and licensed third-party media, Netflix and Amazon Prime Streaming largely offer consumers the same value proposition today. And their dual existence speaks to what I see as the most likely scenario for the future of the streaming space.
Will a rising tide lift all streaming services?
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Having observed the rise of Netflix, Amazon, and other streaming players, I don't think one single company will dominate the streaming landscape. A number of players appear likely to thrive in a future where video content increasingly lives online.
As Netflix itself notes in its own Long-Term View document:
The world's leading linear TV networks now offer their programming on-demand through apps that run on phones and smart TVs. These apps, such as CBS All Access, BBC iPlayer, and HBO Now, enable binge viewing and catch-up viewing. Existing linear networks that offer compelling Internet TV apps will generate more viewing and become more valuable. Those networks that fail to develop first-class apps will lose viewing and revenue.
Today, the entire entertainment and cable industries are undergoing a secular shift to an Internet-based delivery model, some more successfully than others. As leaders in this market, Netflix and Amazon are ideally positioned to capitalize from this trend, but cable companies that embrace the trend should also remain competitive.
In short, the rise of app-based content isn't a zero-sum game, in the same way that the rise of the cable industry in the '60s and '70s spawned numerous large players, not just one single power. So while a large number of our Foolish readers see Netflix as the likely winner of the streaming wars, a more fragmented and competitive streaming future seems like a far more plausible outcome from the current secular shifts disrupting TV and video content distribution.
