Binge watching TV and movies has become a cultural phenomenon thanks to services like Netflix (NFLX), Hulu, and Amazon Instant Video (AMZN). As new consumption habits begin to form, so have traditional means of employing them. Sporting events, live concerts, and the news remain the backbone of television networks, which video services such as Netflix cannot replicate. However, the convenience of viewing your favorite program at your own leisure makes these video streaming services a mainstay for modern consumers.

Video services such as Netflix, Hulu and Amazon Instant Video offer a large library of television programs and movies that have already aired or premiered in theaters, allowing consumers to view programs they had previously missed. Contractual agreements with major networks let these services distribute past and current seasons of popular television programs. Similarly, major networks have formed their own platforms for reaching consumers through digital technology. (Time Warner Inc.'s (TWXHBO, for example, offers HBO GO through a variety of distribution channels.)

Currently, Netflix, Hulu and Amazon Instant Video operate in the same industry with extensive libraries that often overlap. However the foundation, financials, and business models differentiate the three most popular services.

Netflix

Since its founding in 1997, Netflix has been widely recognized as the premium distribution-to-consumer channel for video services. However, Netflix did not launch streaming services until 2007 and instead operated in direct competition with Blockbuster’s rental services. Netflix’s initial business model challenged brick-and-mortar Blockbusters by offering online movie rentals for a low, monthly subscription. As technology and video services evolved through the early 2000s Netflix recognized an opportunity to tap an undiscovered market. By 2007, Netflix doubled as a DVD rental and video streaming service. Netflix customers can now access video streaming services through major game consoles, internet-enabled TV’s, Apple TV (AAPL), Roku and any other product that supports the Netflix mobile app.

Failing to adapt to the evolving landscape of digital technology, Blockbuster was unable to remain an industry leader and closed all brick-and-mortar locations in the U.S. Netflix continues its industry supremacy with 81 million current subscribers in 190 countries and annual revenue exceeding $6 billion. The continued growth of Netflix can be attributed to its ability to adapt to the changing environment of both the video streaming and the cable industries. As new competitors entered the video streaming space, Netflix differentiated its service by offering access to original Netflix programs. Award-winning series, including “House of Cards” and “Orange is the New Black,” further Netflix's efforts to differentiate and innovate from traditional video streaming. 

Hulu

While Netflix initially began as a DVD rental service, Hulu’s business model was established as a video streaming service founded by The Walt Disney Company (DIS), Comcast Corp. (CMCSA) and Twenty-First Century Fox, Inc (FOX) to satiate consumer demand for web-based content. Hulu currently offers a basic service for 7.99/month and a premium service for $11.99 per month. Unlike Netflix, Hulu is structured to source revenue from monthly subscribers and on-screen advertisements. In an attempt to replicate the cable industry, Hulu distributes videos from major networks aside from NBC, ABC, and Fox. Through its 200 content partners, it is reported that Hulu retains between 50 and 70 percent of advertising revenue generated from its videos. With 10 million subscribers and $1.5 billion in revenue, Hulu’s current business model, in contrast to that of Netflix, supplements cable television rather than replaces it.

The Wall Street Journal reported that Hulu will launch a digital pay-TV style platform in the first quarter of 2017 that will allow subscribers to livestream various TV channels. See, Hulu to Launch Online TV Service.

Amazon Instant Video

The largest e-commerce company in the United States, Amazon’s (AMZN) entry into video on demand is no surprise. The company rebranded its video services as Amazon Instant Video in 2011, and Amazon Prime members have access to a large library of movies and TV shows. Closely replicating Netflix, Amazon Instant Video offers instant streaming on Amazon products, major game consoles, set-top boxes, and devices supporting the Amazon app. However, unlike Netflix, users of Amazon’s video service can download video content to watch when internet connections are unavailable. Amazon expanded its library with content from HBO. Prime members can view recent shows like “Girls” and “Veep,” or watch classics such as “The Sopranos.” They have also started producing their own original content including the award-winning 'Mozart in the Jungle' and 'Transparent'. Amazon Prime had 54 million U.S. users last year, but experts estimate that only 40% of that number watch content on Amazon Instant Video at least once a week. 

Net Neutrality

While each company attempts to differentiate its services, internet service providers have demanded additional fees in lieu of slowing content delivery to consumers. In particular, Netflix has pioneered the movement for net neutrality. Net neutrality is the concept that data on the internet should be treated equally. Political groups insist that internet users should bear the costs for data-heavy videos provided by Netflix and other video streaming services. In addition to internet and video service subscriptions, users would be subject to videos from internet service providers. Continued net neutrality will provide video distribution channels consistent profits moving forward.

The Bottom Line

As binge watching culture continues to grow, consumers are offered a variety of video-on-demand services to satiate their viewing needs. Netflix, the undisputed leader, boasts a robust market share, currently operates as a subscription-based service and offers video streaming for $7.99 per month. With original content and a robust library, Netflix remains on top of video on demand.

Conversely, Hulu operates in support of major cable networks. Offering both free and premium services, Hulu generates revenue through on-screen advertising and premium Hulu Plus subscriptions. Hulu's continued efforts as a syndicate for network television represented 10 percent of all TV streams in 2013.

The newest of the three, Amazon Instant Video adds a function to the robust list of amenities offered to Amazon Prime users. Closely replicating Netflix’s services, Amazon Instant Video provides video content and original programming. Consumers benefit from Amazon's attempts to differentiate from competitors by adding features while keeping costs constant.

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