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Netflix's Market Share Is Shrinking, but It's Still the King of Video Streaming

By Chris Neiger - Updated Aug 28, 2019 at 2:01PM

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When you have a massive lead on your streaming rivals and are willing to spend money to keep it, you can afford to stay calm about minor setbacks.

Netflix (NFLX 0.46%) has been one of the leading video streaming services for years -- and easily the largest by revenue -- but there's new evidence that competitors are gaining some ground at its expense. Marketing research firm eMarketer this month published data showing that Netflix is losing a bit of its overall U.S. viewership market share to Amazon (AMZN -1.88%) Prime and Disney's (DIS -1.65%) Hulu.

Back in 2014, Netflix had 90% penetration rate among U.S. over-the-top (OTT) video-streaming viewers, but eMarketer estimates that the rate will drop to 87% of the U.S. market by the end of this year.

Image of Netflix's streaming service menu.

Image source: Netflix.

Hulu is forecast to close 2019 with 75.8 million viewers, giving it a 41.5% penetration rate among OTT video subscribers. That's a 17.5% jump from where it ended 2018. Meanwhile, Amazon Prime is on track to have 96.5 million viewers, giving it a nearly 53% penetration rate in the market, with its subscribers up 8.8% year over year.

It's important to remember that many users have multiple streaming accounts, which is why Netflix can have 87% of the market and Amazon Prime can still have 53%.

The real problem here for Netflix is that it's facing increasing competition from current rivals and is about to be challenged by new ones. Apple (AAPL -1.41%) will launch its new streaming service, called Apple TV+, in the next few months and Disney's new Disney+ streaming service will be available this November.

But despite all of this, neither Netflix shareholders nor those considering buying the stock should be all that worried.

It's not time to panic just yet 

Investors may take the latest data from eMarketer, pair it with the fact that Netflix added just 2.7 million global paid members in the most recently reported quarter -- far below management's forecast of 5 million -- and conclude that the streamer is in big trouble.

But the fact remains that eMarketer says it's still the most popular over-the-top streaming service in the U.S. with 158.8 million viewers this year, up 7.6% from last year. And despite the subscriber gains of Hulu and Amazon Prime, Netflix is still projected to have at least 86.3% penetration of the U.S. streaming video subscriber market four years from now. 

Additionally, while the U.S. customer growth rate failed to meet management's expectations last quarter, the company is spending piles of cash to ensure that it remains on top. 

This year Netflix plans to spend $15 billion on original programming and licensing content. By comparison, Amazon and Apple each plan to spend $6 billion, Disney says it will spend $1 billion on Disney+, and Hulu spends about $2.5 billion.

The competition is heating up, but investors need to remember Netflix's massive and growing catalog of original TV shows and movies (as well as its other licensed content) gives it an enormous head start in the video-streaming marathon. Perhaps that's why management is still forecasting growth of 7 million new global subscribers in the third quarter, up from a gain of 6.1 million subscribers in the year-ago quarter.

Even though the company is slowly losing a bit of ground when it comes to market share, Netflix remains the dominant streaming video service, and its policy of spending scads of money on fresh content, as well as its multiyear head start in the space, should keep it in that position for many years to come.

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Netflix, Inc. Stock Quote
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Apple Inc.
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The Walt Disney Company Stock Quote
The Walt Disney Company
$105.56 (-1.65%) $-1.77, Inc. Stock Quote, Inc.
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