Amazon vs. Netflix: Battle to Become Streaming King Heats Up

Amazon Netflix Streaming Race
Oliver Mundy

While Netflix has higher subscriber number, Amazon gaining steam through its Amazon Prime Instant Video

The battle to become king of streaming content in the U.S. continues to heat up. While Netflix has the higher subscriber number and gets the headlines, Amazon is gaining steam through its Amazon Prime Instant Video segment.

For $79 a year (which translates to $6.59 per month, compared with Netflix’s monthly per-sub fee of $7.99), Prime subscribers receive free two-day shipping on almost all Amazon products. As an additional part of the Prime service, they enjoy unlimited viewing of the more than 41,000 movies and television shows on the site. This year has seen considerable growth for the Prime library, which finished 2012 at approximately 30,000 titles.

While Netflix and Prime are both SVOD services that bid against each other for content, they are different in one crucial respect: While the monthly fee is the raison d’etre of Netflix, the video piece of Prime is really only a fringe benefit; there isn’t any available data as to just what percentage of the Prime crowd even uses Instant Video. (A Bernstein Research survey in July found that 29% of Prime subs don’t use the video option.)

Coincidentally or not, Netflix is seeing its dominance as the No. 1 streaming service in the U.S. erode, according to NPD Group. In the first quarter of 2013, 67% of U.S. streaming customers subscribed only to Netflix — a significant drop from the 76% posted in the first quarter of 2012. Hulu Plus scored 10% of total SVOD subscribers among those who used only one service, while Prime made up just 2% of such single-source users.

In the same NPD Group study, 10% of viewers used Netflix and Prime both for streaming movies and television shows. Eight percent used Netflix and Hulu Plus.

All of these services have begun investing in original programming, a tactic that stole the focus from content licensing in the subscription VOD category this year. Netflix successfully introduced multiple series, including “House of Cards” and “Orange Is the New Black,” while Amazon ordered a string of series in the comedy and kids genres.

But all that activity has obscured the fact that competition over licensing has intensified during the same period, as both Amazon and Netflix seem to have moved away from an earlier emphasis on building the most comprehensive libraries to focus on snaring exclusive pacts that help them stand out in the marketplace.

Amazon wasn’t particularly aggressive on that front until this year, making a number of deals that either outbid Netflix or snapped up content its rival was willing to relinquish. The flurry started in January with a huge cache of content from A&E Networks, followed by more targeted strikes at shows, including PBS’ “Downton Abbey.” The company also inked broad pacts with PBS, NBCUniversal and Scripps in 2013.

Perhaps the most distinctive deal came in February, when Amazon arranged with CBS to get an unprecedented streaming window four days after broadcast of each episode of summer drama “Under the Dome.” Neither side has said how the series has performed on Amazon, but the proof will come in the near future in the form of the number of similarly structured pacts.

The other large signing that showed Amazon’s might was its content deal with Viacom, which included programming from Comedy Central, MTV and Nickelodeon. Kid-centric programming is said to be particularly valuable in SVOD; to make up for the Nickelodeon loss, Netflix has signed deals with Disney (which cost $350 million a year) and DreamWorks Animation. Financials were not released for the DWA deal, but the animation company said it will earn $200 million a year from all of its television deals.

Netflix ended the second quarter of 2013 with 29.8 million streaming subscribers in the United States, and an additional 7.75 million in international markets.

In fiscal 2013, analysts see Amazon earning $1.30 per share, growing to slightly more than 2½-times that to $3.20 in fiscal 2014. These estimates follow a surprising loss of $0.09 in fiscal 2012.

Prime continues to grow its base of subscribers as customers recognize the value of free shipping on products in general, along with its vast collection of streaming content. In March, Morningstar estimated that there were 10 million Prime subscribers, and that the Prime program maxkes up 33% of Amazon’s operating profits. Estimates call for the company to boast 25 million Prime subscribers by 2017, adding between $3 billion and $10 billion to Amazon’s profits.

Amazon doesn’t disclose its Prime numbers, but CFO Thomas J. Szkutak gave the program a vote of confidence in its second quarter earnings call On July 18. “We see very strong growth in Prime subscribers,” he said. “We see very good retention of Prime members.”

In 2012, Prime customers made up only 4% of Amazon’s 182 million active customers.

Amazon revenue is expected to continue to increase at 20% increments annually. Analysts see Amazon growing revenue by 22.4% to $74.80 billion in fiscal 2013, and by 21.7% to $91.01 billion in 2014.

By fiscal 2015, Amazon will likely hit the $100 billion revenue mark. As a comparison, in 2012, only 21 American companies had revenue over $100 billion.

Netflix may be winning the streaming war, but this is a battle that has plenty of room for competitors. And now that the future of Hulu has been settled — at least for awhile — it’s distinctly possible Netflix and Amazon could see a third party become more aggressive on the licensing front, resetting the competitive dynamic in the SVOD space once again.

Amazon Stats

FOUNDED IN: 1994
CEO: JEFF BEZOS
LOCATION: SEATTLE
MARKET CAP: $136.09 BILLION
52-WEEK RANGE: $214.95-$309.39
EMPLOYEES: 91,300
REVENUES: $15.7 billion

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  1. Yes, the way things are going it seems that technology will be more and
    more mobile and stronger than ever before, too. ” This new tool will allow mobile app developers to integrate Google. This small electronic device offers various important features and specifications that can force you to buy Samsung galaxy S.

  2. cy12 (@cy12) says:

    Netflix is dangerous to content producers long-term, because their goal is to become the one and only global platform for all filmed entertainment. This can happen because they benefit from network effects. They will then start dictating terms to producers and distributors, just like Amazon is doing with book publishers. As entertainment producers you want a plethora of healthy platforms to sell to, not one global platform for everything. Studios need to stop feeding Netflix and balance things out before its too late.

  3. Frank says:

    It really depends on ones preference. The biggest value to Netflix is its large selection of movies and tv shows and also its interface is by far much easier to navigate. It also cost $7.99 per mo. which is really affordable in itself if you are using Netflix to replace Cable or Satelite TV, therfore Netflix would be a better option for you. I personally like Amazon Prime better. Its $79 yr plus it offers 2 day free shipping. I do alot of shopping online, and you cant beat 2 day Free shipping, especially during the Holidays. The shipping alone pays for the service.. Lets not sleep on their instant streaming either, they do carry alot of TV shows and Movies and they do have a different variety than Netflix. For starters Amazon Prime has several seasons of SpongeBob and Fairly Odd Parents, which is Huge if you have kids considering Netflix dropped SpongeBob and Fairly Odd Parents. I could do comparisons all day between the 2 companies but both offer great benefits..

  4. dhl7538 says:

    Here are our 7 top shows that you can stream instantly on Netflix, start to finish: via tvtropes.org. The West Wing

  5. reryro says:

    Who mentions what and then ignores what?

  6. TVDude says:

    Netflix is the better option hands down unless you have little kids. The two adult shows Amazon picked up are crap compared to Netflix’s dramas and Arrested Development, which might be getting another season. It’s not even a contest, unless you have little kids.

    I think Amazon Prime is doing good because of the free two-day shipping options (which ends up being heck of value if you shop online regularly), not the streaming, which is more of a bonus.

    Plus, Disney will be putting their movies on Netflix in a couple years and that’ll provide more content for kids on Netflix. So, Netflix will ultimately be the better option for everyone (looking at the content, not Amazon’s free two-day Prime shipping).

  7. Lisa says:

    What battle? Amazon streaming is the most frustrating experience; there are numerous threads dedicated to discussing how bad it is and how horrible customer service is at handling the situation. Netflix streams the best at the end of the day, the execution of the service itself matters the most. I could care less how many titles Amazon or Apple has available via iTunes, it takes hours to download or streaming never buffers properly, resetting play back to 0:00 continuously. Netflix is reliable and dedicates their entire service on delivering streaming video. Not sure what Amazon has to offer in comparison. I can’t even get the video to popup properly in a different window to resize it and I use Windows 7 with a common browser. To those who say the quality is better, how? In comparison, I would much rather watch Hulu as an alternative to Netflix – I get immediate releases in nice quality with a streaming service that actually works.

  8. Laughing_Boy48 says:

    I’m happy with Amazon Prime Instant Video because it’s actually just a perk along with the two-day shipping. Amazon has a decent library, but not nearly as good as Netflix. It seems like Amazon has enough TV shows to last a person a lifetime. There’s an awful lot of content to view. The only complaints I have is that it only shows 300 movies at once and you’ve got to do a lot of searching because there’s no decent filtering system. Amazon just needs to beef up the interface and that would be very helpful. The whole Amazon Prime package just can’t be beat for the average content viewer.

  9. Yvonne says:

    Is Amazon Prime Video available to Canadian Prime customers?

  10. Edward says:

    67% netflix to 2% AMZN ? Is that even competitive? The media loves to build up prime for some reason. Hulu is way more competitive

  11. Mike Hale says:

    Perpetuating the great Amazon Prime lie: “As an additional part of the Prime service, they enjoy unlimited viewing of the more than 41,000 movies and television shows on the site.” A few high-profile shows like “Under the Dome” and “Downton Abbey” are free with prime. But nearly every mainstream TV show you’d want to watch costs $1.99 or more *per episode* to stream, on top of your $79 Prime subscription. Look it up.

    • Russ says:

      You’re right and wrong. It’s more than a few. Honestly, my experience is that most shows I’m interested in, I can’t stream on either for free…and those I can stream on one will generally be available on either.

      The difference for me is that Amazon lets me buy most of the ones that aren’t covered by free streaming digitally instead of signing up for the DVD program on Netflix. And free shipping, so if it isn’t available I can just buy the damn thing if I want. I’m terrible returning discs via Netflix, so it’s cheaper to just buy a disc or two a month than pay for a rental service I’ll never use.

  12. Cord Cutting Crew says:

    I use both.

    Amazon has better video quality, but Netflix has a bigger library.

    Netflix has too long of a wait before a show or film comes to streaming (and some never come to streaming and are DVD-only) and would do well to do more deals like the “Under the Dome” deal, where a show pops up for streaming in only a matter of days. I’ve been streaming Under the Dome on Amazon and it’s great — no commercials!

    If Amazon Prime didn’t offer the free shipping, I probably wouldn’t bother, but that’s a huge plus.

    Hulu is great for streaming TV shows shortly after air, but those commercials are a killer.

    It’s a lot of work to “cut the cord” but it’s also a lot of savings, so there you go.

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