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Streaming Competition Isn't Hurting Netflix or Amazon

By Adam Levy – May 11, 2018 at 5:37PM

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More competing streaming services could actually increase viewership for Netflix and Prime.

Consumers have more options than ever for streaming video, but it seems like that's only helping the biggest players in the space, Netflix (NFLX -4.49%) and Amazon (AMZN -3.01%) Prime.

A recent survey by Morgan Stanley analyst Brian Nowak found that both of the top streaming services were more popular this year than last year. Netflix usage was up 4 percentage points to 46% of respondents, and Amazon usage was up 3 percentage points to 30%. Their increased popularity came largely at the expense of free over-the-air television and authenticated TV apps, indicating other streaming services are helping drive viewership from television to stand-alone streaming.

The trend should be encouraging for investors in Netflix, which will face increased competition from Disney (DIS -2.60%) and other big media companies in the near future. Meanwhile, Amazon's Prime business should do fine even after its upcoming price increase.

A family streaming Netflix in their living room

Image source: Netflix.

Why more viewers keep gravitating toward Netflix

The biggest reason people watch Netflix is its original programming -- 55% of respondents listed it as a reason for viewing, up 5 percentage points from last year's survey. That slightly edges out "broad selection of content" for the leading response. That's important because Netflix's content selection is declining as it focuses more on TV and its originals. Amazon Prime actually offers four times as many films as Netflix.

Overall, 40% of respondents said Netflix has the best originals of any over-the-top or premium network. Morgan Stanley's surveys have shown that more people prefer Netflix originals than any other network's for three years now. And the portfolio of Netflix originals is only going to get better.

The company is producing some 700 pieces of original content this year, from TV series to films to stand-up comedy specials. Those pieces won't just be focused on an American audience, either; there's a growing number of local productions in various markets throughout the world. Nonetheless, some of those local productions turn into global hits.

Disney is entering the market in 2019, and already has plans to release a Star Wars original series on its upcoming Disney-branded streaming service. With its great intellectual property, Disney could produce some excellent original content, and it, of course, has a catalog of the blockbuster films it releases every year. Still, it doesn't have the same budget or focus as Netflix, so it's hard to see the streaming leader ceding much ground in originals.

What about Amazon Prime Video?

Prime Video comes bundled with Amazon Prime. In fact, that's the biggest reason people use it -- 74% of respondents provide that as a reason. Indeed, for millions of Amazon shoppers, unlimited two-day shipping from Amazon on over 100 million items is reason enough to sign up for Prime. So, even if it doesn't have originals on the same level as Netflix, investors don't need to worry about Amazon's pricing power with regards to Prime. Amazon recently announced a price increase for Prime to $119 per year, which is about $10 per month.

That said, people are responding positively to Amazon's increased investments in video content. The company has made its content a priority over the last couple years, and more people are saying they use Prime Video thanks to its improved content selection and recent additions to the catalog. Amazon's original films have done well with critics, award academies, and viewers. Much of Amazon's video content investment, however, is focused overseas, where the company is rapidly expanding its retail operations and hopes to drive Prime membership to support the retail business.

Amazon still has an opportunity with Prime members in the United States, though -- 20% of respondents said they weren't aware of the content available on Prime Video, while 30% said they simply prefer other streaming services. Continued improvement of the video catalog should help drive more Prime members to use their digital video benefits, just as Amazon saw in 2017. Getting more members to stream video will improve retention and cement Prime's higher pricing.

Bring on the competition

More streaming services mean that consumers have more reasons to cut the cord. While a Disney streaming service, for example, might be the straw that breaks the camel's back and convinces a family it can get all its entertainment from streaming, it also means that family will look for more entertainment from streaming staples like Netflix and Amazon.

So, in a world where every media company has a direct-to-consumer offering, Netflix and Amazon Prime actually benefit as people put together their own bundles with those two services at the center.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool has a disclosure policy.

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