Over 50 million Americans subscribe to Netflix (NFLX 0.50%) as of the end of last quarter. That number completely dwarfs Hulu and the number of Amazon (AMZN +3.47%) Prime subscribers taking advantage of its video streaming feature. Hulu has over 12 million subscribers, and comScore estimates that just 17 million Prime subscribers stream content in any given month.
But both Amazon and Hulu are stepping up their original and licensed content spending in an effort to attract new subscribers. That could worry some investors that the two will not only cut into Netflix's market share, but actually steal subscribers away from the streaming leader.
The good news is that the recent growth of Hulu and Amazon Prime subscribers hasn't cut into Netflix's subscriptions. In fact, they serve as complementary services.
Image source: Netflix.
More than one streaming subscription
The number of TV households streaming video from more than one service is growing. Last year, 26% of streaming households subscribed to multiple services. That number climbed to 38% this year, according to a recent survey from Hub Entertainment Research. A similar survey from Leichtman Research Group found the percentage of homes with multiple streaming services increased from 35% in 2014 to 51% today.
An important trend revealed in the Hub Entertainment survey is that Amazon and Hulu are not popular as stand-alone options. Just 6% of households subscribed to Amazon or Hulu without subscribing to Netflix as well.
While both smaller competitors are working to improve their content catalog, the surveys show Americans are willing to pay for multiple services. So their gain doesn't have to be Netflix's loss.
That said, switching costs for Netflix are extremely low. Traditional pay-TV services lock customers into the service with long-term contracts; Netflix subscribers can cancel at any time without penalty. If the competition gets to the point where they can replace Netflix, it's possible they'll cut into its subscriber base.
As such, Netflix continues to invest heavily in content. It's spending billions on global rights to licensed content, and it moved many of its original productions in-house to exercise even greater creative control over the intellectual property. Netflix's original shows make the service extremely sticky. As long as Netflix continues to focus on making its product as good as possible, it doesn't need to worry about the competition.
The real losers
The growth of Netflix's competitors is a bigger threat to traditional pay-TV services than it is to Netflix. Indeed, SNL Kagan estimates the industry will lose nearly 11 million subscribers over the next five years. That trend could accelerate as more over-the-top options come to market or the content catalogs of Netflix, Amazon, and Hulu improve. There's only so many hours to watch TV in a day.
Certainly, there will always be a demand for live TV. Big events like awards shows, sports, and breaking news are best viewed with a traditional pay-TV subscription. But Amazon and Hulu are both moving into that space. Amazon bought the rights to stream 10 Thursday Night Football games this year, and Hulu recently launched a live TV service with a skinny bundle of channels. Netflix, for its part, has denied any interest in live events.
Some cable companies have already moved toward becoming aggregators for all sorts of content. Comcast (CMCSA 12.90%), in particular, makes a point of promoting its X1 platform, which brings together services from Comcast and third parties including Netflix and YouTube to provide an all-in-one entertainment experience. Comcast says X1 households have a higher retention rate than customers without X1.
Cable companies will have to adapt in order to maintain subscribers as more television time is taken up by streaming services. Consumers are not compartmentalizing streaming and live TV, so the growth of Amazon or Hulu is impacting traditional TV more than it's affecting Netflix.
