For the big streaming players, Netflix (NASDAQ:NFLX), Amazon (NASDAQ: AMZN), and Hulu, the early years of the technology have not required much in the way of advertising. Word-of-mouth and a hunger for on-demand content brought most customers to the services, not the other way around. But, as mentioned recently in Advertising Age, that will likely change soon. While content costs are the discussion du jour for streaming companies, what will happen when the companies' marketing budgets blow up?
Consumers are used to seeing ad wars in many areas of technology. Apple often targets Android and Samsung in the cellphone game. And who could forget the "I'm a Mac, I'm a PC" campaign? Meanwhile, fast-food companies spend millions trying to convince us one french fry is better than the other, while Cadillac shows us an American sports sedan outperforming the iconic German driving machines.
It seems likely that, at some point, consumers will need to be pulled in one direction over another for their streaming dollars.
Netflix is certainly the gorilla in the space, with a strong advantage in terms of both subscriber count and titles available. But Amazon's Prime service, though in existence for a shorter amount of time, is gaining ground and popularity fast. Hulu Plus, which holds the smallest number of paying subscribers, is approaching $1 billion in revenue. There are other players out there who are vying for the rights to your living room, and at some point soon (if not already), we are going to be oversaturated with options.
The Advertising Age article noted that Netflix spent $160 million on advertising last year -- by far the leader. Hulu spent less than $40 million. Amazon, which may be the biggest threat to Netflix's future, spent less than $10 million.
Amazon has the largest resources to devote to pushing its streaming service -- if it wants to. The company could launch expensive, targeted campaigns at Netflix touting its cost advantage (more than $1 less per month than Netflix's basic streaming fee) and tie-ins with other parts of the Amazon business (all Prime members are eligible for free two-day shipping).
As all three invest more and more into their original programming, the battle can only intensify. Even though Netflix is the leader in marketing spend, that number could easily balloon in coming years -- adding additional pressure to margins.
The bottom line
Marketing spend will likely not cripple any player, but it is indicative of the increasingly competitive landscape, and a threat to the No. 1 provider. To maintain its position as the king of streaming, Netflix may soon need to explain to us why we just can't live without it.
Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.