Americans are spending a lot more money on streaming video services today than just a couple of years ago. With the proliferation of new streaming services alongside price increases from major players like Netflix (NFLX -3.92%) and Disney (DIS 0.18%), it seems like there's no more room in the budget for streaming video content.

But if you compare how much Americans spend on various streaming services and on-demand video rentals to how much they spend on live-TV subscriptions, there's a clear opportunity for streaming. And if all video eventually goes to streaming, as several industry executives suggest it will, the streaming video industry has a lot of room to keep growing.

A person on a couch holding a remote and watching TV.

Image source: Getty Images.

The spending gap

While many households are cutting the cord, pay-TV providers have managed to raise their rates consistently to offset subscriber losses. As such, consumer spending on live-TV services has remained relatively stable over the last few years.

Meanwhile, Americans have dramatically increased the number of streaming services and the amount they spend on streaming over the last few years. Still, there's a significant gap between the amount consumers pay for live-TV service and on-demand streaming. 

Adjusted spending on streaming video climbed from $19 billion in Q1 2018 to $39 billion in Q1 2022. Cable subscription spending stayed flat around $100 billion.

Data source: Bureau of Economic Analysis. Chart by author.

Americans spend about 2.5 times as much on pay-TV subscriptions versus streaming video subscriptions. That's despite streaming spending more than doubling over the last four years.

It seems unlikely that cable companies can continue to generate stable subscription revenue in the face of cord-cutting and increased selection for on-demand entertainment. Price is already a major factor in cutting the cord for most consumers, and each price increase holds the potential for more subscribers to cancel.

As pay-TV subscription spend declines, investors should expect much of that spending to flow into replacement services, including subscription video-on-demand services.

Streaming spend is still growing fast

Many investors associate the start of the pandemic with acceleration in consumers' spending on streaming video content. In fact, the acceleration began before the start of the pandemic, in November of 2019. That's when Disney launched Disney+, the first of several new major competitors to Netflix.

Indeed, spending continued to accelerate in 2021 and 2022. Year-over-year growth in streaming spending was more than 40% last December.

Year-over-year spending on streaming increased from low double-digits in early 2019, to the mid-20% range in 2020, accelerating further in the back half of 2021.

Data source: Bureau of Economic Activity. Chart by author.

The trend indicates consumers are subscribing to more streaming services. That's further supported by surveys showing the average number of streaming services per household has climbed significantly since 2019, with many now having four or more.

While the pandemic likely bolstered sign-ups for new streaming subscriptions, it appears merely having more options means consumers are interested in buying more. While most media companies have already launched their big streaming services, they're still building out libraries and adding more content every month. Even the most established Netflix competitors, like Disney+, are still adding millions of subscribers every quarter. As the depth and breadth of content available on streaming grows, it becomes more and more likely for consumers to shift their budgets from live-TV subscriptions to streaming.

What it means for investors

Streaming media stocks have fallen out of favor after Netflix reported dismal first-quarter subscriber numbers earlier this year. But that may be shortsighted. Long-term investors who see most video consumption shifting to streaming should be excited by the opportunities the market currently presents.