In an age when cable networks and over-the-top providers of streaming content are vying in every way possible for a bigger number of eyeballs, Netflix (NFLX) has many competitors. And while current and potential Netflix shareholders should be aware of which companies pose the biggest threats to the company, they also should question whether those threats really matter. Competition matters in every industry, but Netflix's situation could be different. Read on to find out more about Netflix as well as its biggest competitors and what they offer.

Key Takeaways

  • More people are cutting the cord and turning to streaming services for their film and television content.
  • Netflix remains the world's largest subscription streaming service with roughly 158 million subscribers in 2019.
  • The company's competition could steal market share—namely Amazon, whose Prime Video service is much cheaper and boasts almost 100 million subscribers.

Who's Watching What?

What people are watching and how they're watching it is constantly changing. According to Nielsen's Total Audience Report from the first quarter of 2019, consumers are connecting less to their television sets compared to the same period from the previous year, turning more to apps and web-based streaming on smartphones and tablets. On average, adults spent three hours and 53 minutes connected to live TV, versus three hours on a smartphone and 50 minutes consuming media on a tablet.

Adults spent about four and a half hours watching live television viewing, about an hour through TV-connected devices like game consoles. In the same period of 2018, viewers spent an average of four hours and 46 minutes watching live TV versus 46 minutes on TV-connected devices.

Data reporting site Statista showed 74% of American consumers used subscription video on demand services in 2019—a jump from the 64% it reported in 2017. The site said Netflix was the number one subscription-based streaming service in the country. Forbes reported that 182.5 million Americans will use streaming services to view content—that's more than 55% of the population.

Netflix: An Overview

Netflix is one of the biggest contributors to the cord-cutting phenomenon. This is when consumers forgo traditional cable network TV in favor of alternative—usually streaming services—and it’s crushing its competition for one simple reason: It's providing quality original content at an affordable price.

The Basics

Netflix is available to consumers through its app, smart TVs, game consoles, streaming media players, and Amazon's Fire TV. The company had about 158 million subscribers across the globe as of the end of the second quarter of 2019. The company projected to increase the number of subscribers by 6.05 million and exceeded that figure to add 6.26 million. This was partly due to competition from other companies in the streaming landscape, which we'll get to a little later. As for how much it costs? There are several options available for subscribers:

Netflix is the world's number one streaming service, boasting almost 158 million subscribers in 2019.

  • The Basic Plan: This is $8.99 per month and comes with very few features. Subscribers can only stream on one device at a time, and it's restricted to standard definition (SD).
  • The Standard Plan: At $12.99 a month, this increases viewing to high definition (HD) on two different screens.
  • The Premium Plan: This plan is the highest one at $15.99 per month, allowing subscribers to stream on four different screens simultaneously in HD.

Offerings

Netflix offers a different range of viewing options from country to country. The company is constantly cycling through titles every month. The options range from feature films, documentaries, anime, and television shows, including Netflix-produced original titles. Some of the company's most famous titles include "House of Cards" and "Orange is the New Black." And the list keeps growing.

Financials

As of the third quarter of 2019, Netflix reported a total of $5.24 billion, slightly under what the company expected, while net income came in at $0.66 billion for the same period. These figures increased from the same period in 2018—$4 billion in revenue and net income of $0.4 billion.


Netflix



FY 2017



FY 2016



FY 2015



Revenue



$11.7 billion



$8.8 billion



$6.8 billion



Net Income



$558 million



$186 million



$123 million


The Streaming Landscape

There are several different competitors that threaten to chip away at market share from Netflix, including Amazon, Hulu, the upcoming streaming service from Walt Disney, as well as some of the cable channels' subscription services.

Amazon

The biggest competitive threat to Netflix is probably Amazon (AMZN). As of 2019, Amazon Prime Video had about 97 million subscribers—a far cry from Netflix's subscribership. But that could change. According to Forbes, the competition is likely to steal market share from Netflix.

If you're an avid Amazon customer, you're probably going to benefit from its Prime membership, which offers free two-day shipping for purchases as well as the streaming subscription rolled in. The cost for this membership is $119 per year or $12.99 if you pay monthly. The subscription costs much less if you're a student: $59 per year or $6.49 per month.

If you're looking at going solo and getting the streaming service on its own, you can expect to pay $8.99 per month—the same cost of Netflix's basic plan, and much less than its premium subscription.

Prime Video offers subscribers access to thousands of titles, ranging from feature films, documentaries, to television. Like its rival Netflix, Amazon Prime also has a its own original films and series including "The Marvelous Mrs. Maisel" and "Transparent." The service is available through the Prime Video app, through smart TVs, game consoles, streaming media players, and Amazon's Fire TV.

Hulu

Hulu's numbers are much less than those who subscribe to Netflix and Amazon. Forbes said there were roughly 79 million paid subscriptions to Hulu. The company originally started off as a DVD rental business, but later expanded to digital streaming.

Consumers pay $5.99 each month for the first year for the basic service. This package comes with ads. Subscribers who don't care for commercials can opt to go for the more expensive package at $11.99 every month.

Disney

There's been a lot of hype around the streaming service offered by Walt Disney. Disney+ is slated to be an on-demand, commercial-free service which will house the entire library of Disney movies along with original Disney TV series. Included in the library are titles from Pixar, Marvel, features from the Star Wars enterprise, as well as National Geographic options. If that's not enough, the service will also include every season of "The Simpsons" and 21st Century Fox films. Subscribers are also slated to get unlimited downloads to watch wherever and whenever they choose.

Netflix and Disney had an exclusive relationship, at least until the studio decided to jump into the streaming war. When Disney announced it was going to launch its own service, it ended the deal it had with Netflix, Netflix offered a number of titles from the studio, but agreed to cut them all from its lineup in 2019.

Disney's service is expected to be up and running on Nov. 12, 2019, and will cost $6.99 per month or $69.99 for an entire year.

The Real Threats

This first and most obvious threat to Netflix is programming costs. The company announced it would spend up to $15 billion on content in 2019. That’s mildly insane content, and bidding wars could lead to even higher costs. But Netflix is growing its top line so fast that it could help offset this concern. A related concern is free cash flow, which for the full year 2018 came in at -$2.8 billion. This part of the story comes down to whether or not Netflix can outgrow its expenses. If Netflix wants to increase the odds of making this happen over the long haul, it’s likely going to need to keep churning out big hit after big hit. It can’t rely on "The Crown" and "Orange is the New Black" forever.

The other concern is much simpler. As of Oct. 25, 2019, Netflix has a trailing 12 months price-to-earnings ratio (TTM P/E) of 90.31, making it a relatively high growth stock. If the broader market were to falter due to investors thinking it is overvalued, Netflix would not be seen as a place to hide. In fact, those invested in Netflix might panic and sell to move into safer names. This would hit the stock hard. And that’s what investors care about most: the stock price. The good news is that no direct competitor to Netflix is within the same stratosphere when it comes to quality and price. Therefore, if this remains to be the case, it should find a way to be a winner for some time. 

The Bottom Line

Netflix dominates its competition in streaming — that’s not a concern. The real worries are programming costs and stock valuation in what is likely to be a volatile stock market over the next several years. This can lead to some painful drops, but if you’re looking at the underlying business of Netflix, it still could be a long-term winner.

At the time of initial writing, Dan Moskowitz did not have any positions in NFLX, AMZN, CMCSK, TWX, FOX or DIS. This post has been updated throughout.