All good things must come to an end. And while we don't know for certain when the next recession will occur, we do know it will eventually hit. When the economy turns sour and people have to be more cautious about their spending, which streaming companies are likely to remain strongest? Netflix (NASDAQ:NFLX)? Amazon's (NASDAQ:AMZN) Amazon Prime Video? Upcoming efforts from Apple (NASDAQ: AAPL), Disney (NYSE: DIS), and AT&T's (NYSE: T) WarnerMedia?
There are reasons to believe that the cord-cutting revolution that has bolstered streaming companies will continue apace during a recession -- cord-cutting is supposed to be a cost-saving measure, after all. But there are fewer reasons to believe that recession-curtailed spending will support the kind of diverse ecosystem of streaming services that is forming now. A CNBC survey found that most Americans -- 57% -- have at least one streaming subscription, but less than half that number have more than one. Even affordable niche streaming services -- ideal, in theory, for supplementing another on-demand video subscription -- have had trouble making profits and are, in some cases, being shut down.
With new streaming on-demand services from Disney and WarnerMedia on the horizon, there are about to be a whole lot of streaming services for consumers to choose from. That sounds enticing, but people will likely be even less willing to splurge on multiple streaming subscriptions during a recession. So if it comes down to a recession-fueled zero-sum streaming game, which services would fare best? Let's take a look.
Netflix: The service with the inside track
An established user base matters, and Netflix has one. Netflix's user base tops 137 million, which is more than any other subscription streaming service can claim. Only Amazon's Prime Video comes close, but that's largely because it is tied into a regular Amazon Prime subscription. The number of viewers reached by Amazon Prime Video is lower than the Prime subscriber count; estimates have placed it at around 26 million in the past, which was about 31% of the contemporary Prime subscriber count. Assuming the same penetration and updated Prime estimates, Amazon's streaming service would reach more than 31 million users today -- impressive but still short of Netflix's figures.
Unless other services can find a way to convince more consumers to invest in more than one streaming service at once, making headway in the streaming market will have to mean chipping away at Netflix's user base. Netflix seems best positioned by far to weather an economic recession given that so many people already are in its monthly subscription program.
Amazon: Cost-saving tie-ins
Amazon Prime Video does have the advantage of being a cost-effective solution -- something that could serve it well in a recession.
An Amazon Prime membership costs $119 per year or $12.99 per month. That's right around the price of the most popular Netflix plan, which is $10.99 per month. But Amazon Prime Video is, of course, just one part of an Amazon Prime subscription, which also includes such perks as streaming music and free two-day shipping on many products in Amazon's marketplace. The shopping-related perks could be key to keeping members during a recession as Prime members feel they are getting deals.
Disney, Apple, and WarnerMedia: Timing is everything
Three huge companies have streaming video on demand services planned for 2019: Disney, Apple, and (through subsidiary WarnerMedia) AT&T. Can these services make a dent in Netflix's dominance? Perhaps -- but a recession could throw a serious wrench into their plans.
Competing with Netflix means spending big. Apple is making a $1 billion investment in original content. AT&T and Disney are both able to create streaming services on this scale because of major acquisitions they made -- acquisitions that already seem like relics of past economic times, as the low interest rates that fueled 2018's merger mania are expected to keep rising. The firepower these new streaming services are bringing will make life interesting for Netflix execs, but if consumer confidence and spending wane ahead of or soon after these new services' 2019 release dates, that could play into the hands of the more established Netflix and Amazon.
Hits to subscriber growth worse for some than others
No streaming service will benefit in the short term from an economic recession and a reduction in consumer spending. But if a recession must come, there are worse times for Netflix and Amazon to see one. A penny-pinching population could make next year's competitive streaming market very rough on the newcomers, while inertia and shopping-related value-adds work to keep Netflix and Amazon on top of the streaming market.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Stephen Lovely owns shares of Amazon, Apple, AT&T, and Netflix. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.