When investors think of on-demand streaming services, Netflix is a top-of-mind name. Ditto for HBO Max. The Walt Disney Company's (DIS -0.04%) Disney+ and Hulu platforms are high-profile platforms in the direct-to-consumer media business as well.
All of them, however, may want to pay closer attention to an increasingly tough contender in the streaming space. Amazon's (AMZN 3.43%) Prime has always captured more total view-time in the United States than Disney+. Thanks to Prime's continued growth (and Hulu's lack thereof), though, Amazon's streaming service is now more popular than any of Disney's streaming brands.
And this position change has implications for both companies' stocks.
Nielsen's eye-opening numbers
The data comes from TV ratings agency Nielsen, and is plotted on the graph below. After a couple years' worth of progress, in October Amazon Prime's total domestic watch-time finally eclipsed Hulu's time-share of domestic television sets. Both lost ground in November, but Hulu clearly lost a great deal more. In fact, Hulu's 2.7% of total U.S. television viewing time is the lowest the figure's been since early 2021. Meanwhile, Disney+ continues to tread water around the 2% mark.
Data source: Nielsen. Chart by author.
Surprised? It would be surprising if you weren't. Walt Disney is one of the world's most powerful media and entertainment outfits, after all. If nothing else, it knows how to make and market video entertainment. Amazon is an e-commerce behemoth and a cloud computing monster. But it isn't exactly known for its on-demand streaming prowess.
And yet, there it is. Domestic viewers are finding more to watch on Prime than they are on Hulu or Disney+. It's not a perfect apples-to-apples comparison, of course. Domestic Prime subscribers are far greater in number than domestic Hulu and Disney+ subscribers.
While Amazon neither confirms nor denies the numbers, a handful of estimates suggest there are on the order of 160 million Prime customers in the U.S. alone. Conversely, Walt Disney reports that there are only 46.5 million Disney+ subscribers, and only 43.9 million Hulu customers. Prime should be the more watched service of the three in question, if for no other reason than its greater reach.
Prime's content library is also bigger. The Disney+ lineup only includes Disney-branded franchises. While Hulu offers more, its assortment is also largely limited to Disney's non-Disney studio content, select ABC content, and programming from Hulu's co-owner NBCUniversal. Amazon shops around for content from several different sources, and it's got the deep pockets to buy whatever content it needs.
Most people say they pay for Prime not for access to online video, but for the free shipping the program offers on purchases made at Amazon.com. Many of these people just happen to tune in because they've got access to a sizable digital video library. Hulu and Disney+ aren't a perk. They're the product in and of themselves.
Nevertheless, Amazon Prime is gaining view-time ground, while Hulu is losing it, and Disney+ still doesn't have much of it. These trends have implications for both companies' stocks.
Good news for Amazon
Don't read too much into this dynamic for either organization. Cable television and theme parks remain Disney's top breadwinners. Amazon's top source of revenue is still e-commerce, while its big moneymaker is cloud computing.
Nielsen's measured shift in domestic viewing time for Prime and Hulu isn't exactly earth-shattering. But there is valuable information to be gleaned here about both companies.
For Amazon, the information is bullish. Simply put, the data suggests that most U.S. consumers are still big fans of (and users of) Prime. It matters just because Prime members are also more likely to shop at Amazon.com when free shipping is an option.
Market research firm Digital Commerce 360 reports that Prime's free shipping perk is the second biggest reason people shop with Amazon, in fact; the first reason is Amazon's enormous selection. Several estimates indicate that Prime subscribers spend two to three times as much at Amazon.com as non-Prime customers do.
Then there's the new, ancillary reason Nielsen's numbers are kind of a big deal. Prior to the COVID-19 pandemic, Amazon's e-commerce model was simple and straightforward. Now, its online shopping model is evolving and more nuanced. Turning a profit on the sale of goods is no longer its sole e-commerce goal. Rather, the company is building an advertising business that monetizes Amazon.com's web traffic in a different way. It did over $12 billion worth of ad business last quarter, up 25% year over year.
It's still the early days for this particular profit center, which likely boasts better profit margins than the simple sale of goods online does. More -- and better engaged -- Prime members could bolster this aspect of the company's business more than most investors might expect.
Bad news for Walt Disney
As for Walt Disney, the relative disinterest in Disney+ and the growing disinterest in Hulu is a red flag.
You may recall that the hype surrounding the late 2019 launch of Disney+ was palpable. Netflix had already proven streaming can be a viable business, but Disney was a natural when it came to content creation and marketing. The company even restructured itself in 2020 to prioritize the growth of its streaming services over all its other divisions.
But its streaming hasn't quite lived up to expectations. Although the media giant got to within sight of its initial streaming customer goals, its direct-to-consumer arm remains well in the red, losing over $400 million last quarter alone on over $5 billion in revenue.
To its credit, Disney is cutting costs in an effort to push its streaming business out of the red and into the black. Early this year, it vowed to cull $5.5 billion worth of annual expenses, and then upped that figure by another $2 billion in November. Decreased spending on content is a core component of this plan, and could be at least part of the reason why Disney's streaming losses are shrinking.
Spending less on programming is a double-edged sword, though. Disney+ and Hulu's U.S. customer headcount growth was already slowing down. In 2023, it's completely flatlined. The company is seeing a comparable slowdown with its international streaming brands as well -- not that it matters a great deal. Most of its direct-to-consumer revenue is driven domestically anyway.
Data source: Walt Disney. Chart by author. All numbers are in millions.
It matters simply because streaming makes up over one-fifth of Disney's top line, yet streaming's profit margin rates are still miles away from those of its cable television business, its sports arm, and its theme park and hotel division. Even a direct-to-consumer business that's made profitable may never be as profitable as these other divisions, and that's assuming less spending on content doesn't continue to chip away at subscriber growth. Again, the number of paying streaming customers is essentially stagnant now.
Take the hints at face value
Don't read too much into the message. Growing use of Prime's perks isn't a game-changing reason to own a stake in Amazon. Weak and falling view-time of Hulu and Disney+ doesn't put Walt Disney on its deathbed.
Nielsen's numbers aren't meaningless, however. If nothing else, they're reflective of far more important factors for both companies. They further bolster the argument against owning Disney shares, and they strengthen Amazon's overall bullish thesis. Take these hints at face value.
