There's a new king of streaming in the United States.
A new report from market research consultant Park Associates estimates Amazon's (AMZN 1.49%) Prime Video has more paid subscribers than Netflix (NFLX -0.08%). That's the first time the latter hasn't taken the top spot in the annual report, and it's likely the first time anyone anywhere has suggested it's not the biggest paid streaming service in the U.S.
The success of Amazon Prime amid growing competition in streaming points to the stickiness of the service for Amazon and the growing challenge of subscriber churn for Netflix.
Standing above the competition
Prime Video has likely gained some appeal among video streamers with many new competitors and ongoing price increases in the industry.
The key factor benefiting Prime Video is the fact that most people subscribe to the service as part of the overall Amazon Prime subscription. Amazon does offer a stand-alone video subscription for $8.99 per month, but subscribers can get full Prime benefits for $139 per year.
The benefits of a Prime membership are indispensable for many Amazon shoppers: Unlimited ultrafast shipping and an extra 2% cash back on Amazon-branded credit cards can make the membership pay for itself. Other benefits include digital photo storage, music streaming, prescription drug services, grocery delivery and pickup, and of course, Prime Video. That bundle of benefits makes it tough for anyone to give up a Prime subscription in favor of a competing video streaming service.
Video streaming certainly isn't the centerpiece of Amazon Prime for many, but that doesn't mean it doesn't play an important role in attracting and retaining Prime members. When Amazon debuted its first exclusive Thursday Night Football game earlier this year, the company claimed that the game's three-hour time slot saw the highest number of Prime sign-ups ever. Big releases on Prime Video draw attention to the program and keep current members paying for the service month after month.
Prime has always managed to keep its churn rate -- the percentage of subscribers that cancel every month -- very low. Netflix has historically had a low churn rate as well, with occasional spikes around price hikes. However, according to estimates, Netflix has seen churn climb this year. That's likely due to growing competition, price hikes, and a growing ability to participate in activities outside of the home once again. Amazon, however, has seen churn remain stable for Prime.
Will Netflix make a comeback?
Netflix has lost a small chunk of North American subscribers over the past year, but it's working to win them back.
The streaming leader saw more than 600,000 Americans and Canadians drop their subscriptions over the past 12 months. The drop coincided with a price hike earlier this year, a return to normal entertainment activities, inflation pressure, and a step-up in competitive offerings. The service started to turn the corner last quarter, however, when it added about 100,000 new subscribers in the region.
To reinvigorate subscriber growth, Netflix now offers a low-priced ad-supported version of the service. It's also planning to expand on its efforts to cut down on password sharing next year, pushing customers to either pay more to share or split off viewer profiles to their subscriptions.
Whether those efforts will be enough to push Netflix back to the top of the list remains to be seen. But investors are optimistic that it's moving back in the right direction following the third-quarter earnings report. That said, management is moving away from reporting paid subscriptions in its quarterly reports, pushing the focus to revenue growth.
Better buy: Amazon or Netflix?
Amazon overtaking Netflix as the streaming leader in the United States speaks more to the strength of Amazon than any real weakness in Netflix.
Both are very strong companies with management teams focused on long-term results for investors. That makes them both great investment options.
But Amazon may have an edge. Overtaking Netflix as the streaming leader points to how well Amazon manages to keep its Prime members happy and paying for the service year after year. Not to mention Amazon's other growth drivers, including its high-margin Amazon Web Services and advertising businesses, plus the secular growth of e-commerce.
What's more, the stock is trading at a bargain price right now, less than 2 times sales. Amazon shares haven't seen that low of a valuation since 2015. So, now may be an opportune time to buy some Amazon stock.
