Please ensure Javascript is enabled for purposes of website accessibility

Netflix and Amazon Take the Lead in This $25 Billion Market

By Rich Duprey – May 15, 2018 at 7:44PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Most U.S. households are still watching pay TV, but maybe not for much longer.

The problems keep mounting for cable TV as more people cut the cord and consume entertainment from video streaming services.

Less than two-thirds of U.S. households subscribed to a pay-TV service in 2017, down from 74% the year before, according to the Deloitte 2018 Digital Media Trends Survey, while 55% subscribe to at least one video streaming service, a dramatic increase from the scant 9% who did in 2009.

The problem for cable gets even more pronounced when TV consumption is viewed by age. While baby boomers are watching some 31 hours of broadcast TV a week and only nine hours of streaming video, Gen Z viewers are consuming 22 hours of streaming content and only 16 hours of broadcast. Yet so alike are the viewing habits of Gen X, millennials, and Gen Z viewers that Deloitte dubs them "milleXZials."

Girl with headphones looking at her laptop

Younger generations are watching more streaming video than live broadcast content. Image source: Getty Images.

A generational divide in cord-cutting

That doesn't bode well for pay TV, which would rather people stop streaming as much content as they age, and just settle down in front of their cable TV. The survey indicates that's not happening.

A significant problem for cable TV is that people just don't think they're getting a good deal for the money they pay. Coupled with the fact you're forced to watch programming when the provider wants you to watch, not when you want, it's a volatile situation. 

The biggest beneficiary from this move away from broadcast toward streaming, of course, is Netflix (NFLX -0.69%), which had 119 million paid subscribers worldwide at the end of the first quarter, with over 55 million in the U.S.

Digital marketing site eMarketer estimates that based on an average of $10.99 monthly cost, Netflix generated $6.1 billion in annual U.S. subscription revenue, more than three times the $2.8 billion runner-up (AMZN -1.27%) generated.

Hulu was a surprisingly close third with almost $2.1 billion in annual subscription revenue, but no one even comes close after that with HBO Now having just 5 million subscribers and generating an estimated $899 million in revenue from them.

The Deloitte survey says the average household subscribes to three different video streaming services, totaling $2.1 billion monthly in revenue, or over $25 billion a year. That means Netflix and Amazon alone account for 34% of total subscriptions paid.

Service U.S. Subscribers 2017 (in Millions)

Average Monthly Cost

Est. Annual Subscription Revenue (in Millions)
Netflix 52.8 $10.99 $6,153.0 26.0 $8.99 $2,804.9
Hulu 17.0 $9.99 $2,038.0
HBO Now 5.0 $14.99 $899.4
Showtime 2.5 $10.99 $329.7

Chart by author. Data source: eMarketer.

Some pay-TV services may yet survive

Cable services are particularly at risk. The only reason most people are keeping cable TV is because it's part of a bundle that includes internet and a landline. Increasing amounts of streaming content is being consumed on mobile devices. It's not unreasonable to assume that households may eventually favor just having internet since they're already watching videos on other devices, putting pay TV is at grave risk.

However, Sensor Tower -- a mobile app oriented marketing intelligence company -- says some pay services may be able to make the transition to mobile and survive separately from cable. HBO Now, for example, is the third-largest mobile app for gross revenue growth across the App Store and Google Play, suggesting it can survive cord-cutting.

Still, it's not a sure thing for the app because HBO relies on hit shows like Game of Thrones to generate interest -- and downloads -- and the lull between seasons or finding hit shows means its success may be unpredictable.

Cable TV's survival depends on its ability to change how it delivers programming and doing so at a better price. Having had a monopoly on content delivery for so long, it was slow to respond when alternatives arrived. Now it's fading fast, and the convenience, cost, and individuality that streaming offers may prove too hard of a combination to compete against. It's certainly a combination that pay TV has yet to effectively respond to. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
$222.53 (-0.69%) $-1.54, Inc. Stock Quote, Inc.
$113.69 (-1.27%) $-1.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.