Traditional TV and cable subscriptions have declined for years, with streaming services steadily converting consumers. Amazon (AMZN -1.03%) has meanwhile grown its streaming business to include nearly every facet of digital entertainment available. Here's why the company could be the one to convince people to finally cut that cord.
A one-stop digital shop
"Cord-cutting" is a worldwide trend that has seen millions of people leave behind their cable and satellite TV services for lower-cost streaming options. From 2019 to 2021, U.S. cable providers lost about 6 million subscribers, with cable and satellite companies losing 25 million users since 2012. Analysts project that the industry will lose another 25 million subscribers by 2025 as more people opt for digital TV options.
Meanwhile, Amazon's Prime Video retained a 19% market share of the streaming industry in 2021 and first-quarter 2022, the second highest share behind Netflix (NFLX -0.36%), whose share is in decline. Amazon started its digital video business with the launch of Prime Video, then Amazon Unbox, in 2006. Its original purpose was to allow customers to download movies. However, the success of Netflix and technological advances led the platform to shift focus to streaming in 2011. It began with a library of 5,000 streamable movies and TV shows, which has since seen exponential growth.
Prime Video is now home to a variety of entertainment services, such as buying and renting content, a streaming library of original and licensed content, live sports, and third-party channels. The platform has seen Amazon create a space that differs vastly from its biggest competitors, such as Netflix, HBO Max, and Disney+, whose platforms are relatively one-dimensional. Prime Video has become an entire ecosystem built to satisfy almost any video entertainment need a Prime member might have.
Additionally, Amazon Channels launched in 2015 and is perhaps the biggest sway for people to ditch their cable subscriptions. The service allows Prime members to add on popular channels that rose to popularity on traditional cable providers but can now be streamed directly through Prime Video. Prime members can choose from around 150 different channels to add, typically ranging from an extra $0.99 to $14.99/month. Some popular options include HBO, Showtime, Starz, Comedy Central Now, and PBS KIDS.
As the world continues to feel the effects of the pandemic and geopolitical events, the cost of living is rising globally. Many are cutting discretionary spending, with entertainment the first to go. Netflix has experienced this firsthand, with a loss of 200,000 subscribers in Q1 2022, yet Amazon Prime memberships are on the rise. U.S. Prime memberships rose from 142.5 million in 2020 to 151.9 million in 2021, 58.2% of the population.
As most U.S. homes seem intent on keeping their Prime subscriptions, Amazon has the opportunity to offer attractive entertainment options that don't require a separate service or membership. A 2020 report found the average cable package costs $217.42/month, more than the average combined cost of utilities (electricity, gas, water, sewage, and garbage), which came to $202.50. For 44% less, or $120/year, Prime offers a whole range of additional services, from free two-day shipping on Amazon to music and, of course, Prime Video. People can use the difference to add multiple Amazon Channels and still pay significantly less. The latest Prime Day even saw several channels, such as Starz and Showtime, on sale for $1/month for two months.
The biggest pull for cable is currently live sports, an aspect of entertainment that Amazon is steadily growing within Prime Video. Subscribers can already add on channels to access professional leagues with MLB.TV, NBA League Pass, NBA TV, and La Liga TV.
However, to increase its sporting options, Amazon made an 11-year deal in 2021 to pay $1 billion a year for exclusive rights to broadcast 15 Thursday Night Football games throughout the NFL season and one game during pre-season each year. Initially set to begin broadcasting in 2023, the historic deal now allows the games to appear on Prime Video in 2022.
What to look out for
As cable and satellite subscriptions dwindle and Amazon Prime memberships continue to grow, consumers will increasingly see the benefits of making the switch. A good indicator of where the market is going is not only Prime subscription growth, but also traditional cable providers' financial statements.
For instance, the biggest part of Comcast's (CMCSA -0.97%) business is "cable and communications," responsible for 53% of revenue. Meanwhile, its media division includes revenue from its Peacock streaming service and is its second-biggest division at 19%. However, from Q1 2021 to Q1 2022, media revenue grew by 36.3%, while cable communications revenue increased by 4.6%.The figures indicate that customers are far more interested in digital services than cable. As this trend continues and Amazon only grows its offerings, the company could be in for a big win.