There’s a new king of streaming in the US.
A new report from market research consultant Park Associates estimates Amazonof (AMZN 1.64%) Prime Video has more paying subscribers Netflix (NFLX -1.51%). It’s the first time it hasn’t taken the top spot in the annual report, and it’s probably the first time anyone anywhere has suggested it’s not the biggest paid streaming service in the US.
Amazon Prime’s success amid growing competition from streaming points to the service’s stickiness for Amazon and the challenge of subscriber growth for Netflix.
Standing above the competition
Prime Video has gained some traction among video streamers with many new competitors and price hikes in the industry.
The main factor that makes Prime Video profitable is that many people subscribe to the service as part of the overall Amazon Prime subscription. Amazon offers a stand-alone video subscription for $8.99 a month, but subscribers can get full Prime benefits for $139 a year.
The benefits of Prime membership are essential for many Amazon shoppers: unlimited ultrafast shipping and an extra 2% cash back on Amazon-branded credit cards paid for the membership itself. Other benefits include digital photo storage, music streaming, prescription services, grocery delivery and pickup, and of course, Prime Video. That set of benefits makes it hard for anyone to give up a Prime subscription for a competing video streaming service.
Video streaming certainly isn’t the focus 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 became its first exclusive Thursday Night Football The game Earlier this year, the company claimed that the game’s three-hour time slot saw the highest number of Prime signups ever. Prime Video’s big releases focus on the program and keep current members paying for the service month-to-month.
Prime has always managed to keep its churn rate — the percentage of subscribers who cancel each month — very low. Netflix has also historically had a low volatility ratio with occasional spikes around price increases. However, according to estimates, Netflix has seen growth this year. This may be due to growing competition, rising prices and the ability to once again participate in activities outside the home. Amazon, however, has seen Prime remain stable.
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 has seen more than 600,000 Americans and Canadians drop their subscriptions in the past 12 months. The decline coincided with a rise in prices earlier this year, a return to normal recreational activity, inflationary pressures and a move in competitive offers. The service started to turn the corner last quarter, however, when it added about 100,000 new subscribers in the region.
To spur subscriber growth, Netflix is now offering a cheaper ad-supported version of the service. It plans to expand efforts to crack down on password sharing next year, pushing customers to pay more to share or allocate viewer profiles to their subscriptions.
Whether those efforts will be enough to push Netflix back up the list remains to be seen. But investors are optimistic that it will move back in the right direction after the third-quarter earnings report. That is, management is moving away from reporting paid contributions in its quarterly reports, and focusing on revenue growth.
Better Buy: Amazon or Netflix?
Amazon overtaking Netflix as the streaming leader in the US speaks to Amazon’s strength rather than Netflix’s real weakness.
Both are very strong companies with management teams focused on long-term results for investors. That makes them both excellent investment options.
But Amazon may have an edge. Overtaking Netflix as the streaming leader shows 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 secular growth in advertising and e-commerce.
What’s more, the stock is now trading at a bargain price, less than 2 times sales. Amazon stock hasn’t seen a valuation this low since 2015. So, now might be the perfect time to buy some Amazon stock.
John Mackey, CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Adam Levy has positions at Amazon.com and Netflix. The Motley Fool has positions on and recommends Amazon.com and Netflix. The Motley Fool has a disclosure policy.