Amazon.com, Inc. (AMZN) has been pushing its streaming video service from being a Prime membership perk to a wider audience — including a monthly subscription service that competes directly with Netflix, Inc. (NFLX) — and that strategy has dramatically changed the streaming video market. AMZN has vaulted into third place in North America, behind only Netflix and Alphabet Inc’s (GOOG, GOOGL) YouTube.
Amazon started out offering streaming video services as an enticement for subscribing to a Prime membership. It was a bit player at best compared to market leaders like Netflix.
In 2012, while Netflix was chewing up nearly one-third of all downstream internet traffic in the U.S. and YouTube was just under 15%, only 1.75% of that bandwidth was being used by people streaming Amazon Video.
Slowly, AMZN began to put more emphasis on streaming video. It began developing its own original programming, including series such as Transparent and The Man in The High Castle, as well as building its library of third-party video offerings. It launched a streaming video hardware platform, with the Fire TV and Fire TV Stick. Amazon Video apps were released for a wide range of mobile devices and competing streamers, and the company has been championing high-tech video streaming quality with 4K and HDR video.
Amazon Going Head-to-Head With Netflix
Earlier this year, AMZN announced it was effectively going head-to-head against Netflix, Hulu and other subscription streaming video services by offering Amazon Prime Video for $8.99 per month.
The relentless pursuit of streaming video is paying off for Amazon, at least in terms of market share.
According to data released by Sandvine (which measures bandwidth consumed, not actual subscriber numbers), Amazon Video was the eighth-largest generator of downstream internet traffic in the U.S. last year, but has now jumped to third place. That’s a huge leap and it puts Amazon well ahead of other streaming video sources such as Hulu and Apple Inc.’s (AAPL) iTunes.
Again, this is a measurement of traffic, not subscribers. So it’s possible that Amazon’s customers just watch a whole lot more streaming video than anyone else. The more likely explanation is that AMZN’s years of improving its video offerings, then taking the service mainstream with a monthly subscription (that just so happens to slightly undercut the price of competitors) is paying off.
The Number 3 Spot
Despite the dramatic rise in rankings, Amazon Video has no chance of catching up to Netflix or YouTube any time soon. The two leaders have actually inched upward, now accounting for 35.15% and 17.53% of downstream traffic, respectively, while AMZN has 4.26%.
What the numbers do reflect, however, are some ongoing trends, including what’s been happening with streaming music (another area that AMZN has its eye on): a move away from single purchases to subscription services; a decline in illegal downloads, thanks to the vast libraries offered by subscription services; consolidation in the industry, with consumers gravitating toward a few dominant services while smaller companies close up shop.
With its No. 3 spot, Amazon Video is positioned to be one of those dominant video streaming services.
That pays off with increased leverage for content licensing deals, plus a snowball effect (the bigger you get, the more more people jump on the bandwagon) that makes the service even bigger, usually at the expense of the shrinking field of smaller competitors.
Bottom Line on AMZN and Streaming Video
How AMZN monetizes this is another matter. Having a monthly Amazon Video subscription probably won’t have the same effect in terms of driving people to Amazon.com to buy things the way a Kindle tablet or Echo speaker might. But, if anyone can figure out that angle, it’s Amazon.
In the meantime, the company can celebrate the fact that it’s now one of the the big three players in the streaming video market, with Netflix and YouTube for company. If it continues with this success, Amazon Video is well on its way from being merely a perk to a major line of business for AMZN.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
