Amazon (AMZN +0.55%) has always said Prime Video is an important driver of Prime membership growth. The data shows there's still room for improvement, though.
23% of U.S. Amazon Prime subscribers said they would definitely cancel their membership if Prime Video wasn't included in their subscription, according to a recent survey from Loop Capital Markets. Seen another way, 23% of members signed up for Prime principally to stream video.
Those survey results are in line with leaked data about Amazon originals that indicates they contributed about 5 million new Prime members between 2014 and 2017 -- roughly one-quarter of all new members during that period, according to estimates.
With Amazon spending billions on new originals and licensed content every year, it has the potential to attract a lot more Prime members to the service with a few big hits.
Image source: Amazon.
Amazon is no Netflix
Netflix (NFLX 0.91%) had nearly 55 million U.S. subscribers as of the end of last year. By comparison, Amazon Prime had some 90 million members in the U.S.
Nonetheless, Netflix remains significantly more popular than Prime Video in the United States. eMarketer estimates Netflix draws 50% more viewers than Prime Video. Loop Capital found the most-watched Prime Video original had fewer viewers than the fifth most popular Netflix original.
Netflix has some of the best originals on television (streaming or linear), and it's paying quite a bit to make them. The company expects to spend up to $8 billion on content this year on a profit-and-loss basis, and even more in terms of its total cash outlays. Amazon's budget was just $4.5 billion last year, according to estimates.
But Amazon could improve viewership by focusing on quality over quantity. More respondents said they'd watch more Prime Video if it had better content than said they want more content.
That's what Netflix has been doing. Despite its ballooning budget, it's focused more on producing and licensing high-quality content versus simply licensing more content. CEO Reed Hastings noted, "When you spend on the big items they go much, much further than a whole lot of substitutable content," during the company's first-quarter earnings call in 2016.
Can Amazon create more must-have content?
Amazon has had a few hits in its first few years of developing content -- The Man in the High Castle and The Grand Tour -- but very few of its series are considered on the same level as Netflix or HBO originals.
Amazon is taking steps to change that. It paid $250 million for the rights to produce a Lord of the Rings series. It's also committed to keep investing in video this year (although it's not clear how much of that investment will go to content targeted toward an international audience).
Amazon has found Prime members that watch video renew their subscriptions at a higher rate and spend more on average. Additionally, developing a few tentpole series could help Amazon attract a whole new group of subscribers to its $99 per year loyalty program. Ultimately, that ought to provide a boost in sales since Prime members spend more on average than non-members, a pattern that's held true even as Prime membership has grown.
To be sure, Amazon's 90 million Prime households represent the upper end of Netflix's 60 million to 90 million long-term goal for U.S. subscribers. But since Prime offers so much more value than Netflix, it has the potential to reach many more customers. While Amazon continues to grow quickly and take share of the online retail market, it still has room to improve.
