Binge watching TV and movies has become a cultural phenomenon thanks to services like Netflix (NFLX), Hulu and Amazon Prime Video (AMZN). As new consumption habits continue to emerge, so have the traditional means of employing them. Sporting events, live concerts and the news remain the backbone of television networks, which many video services such as Netflix have generally not replicated. Other services such as Hulu's and YouTubeTV's have begun to offer live TV streaming services in conjunction with their video services.
However, the convenience of viewing your favorite program at your own leisure on any device makes these video streaming services a mainstay for modern consumers.
Video services such as Netflix, Hulu and Amazon Prime 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. (AT&T's HBO, for example, offers HBO GO and HBO Now through a variety of distribution channels.)
Currently, Netflix, Hulu and Amazon Prime Video operate in the same industry with extensive libraries that often overlap. However, the foundation, financials and business models differentiate these three popular services.
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, mobile devices, Apple TV (AAPL), Roku, Chromecast and any other product that supports Netflix apps.
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 137 million current subscribers and annual revenue exceeding $11.6 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 "Stranger Things, “House of Cards” and “Ozark” further Netflix's efforts to differentiate and innovate from traditional video streaming.
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 (CMCSA) and Twenty-First Century Fox (FOX) to satiate consumer demand for web-based content. Hulu currently offers a basic service for 5.99/month for the first year, a premium service without commercials for $11.99/month and a service that includes live TV for $39.99 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. With over 20 million subscribers, Hulu’s current business model, in contrast to that of Netflix, supplements cable television rather than replace it.
Amazon Prime Video
The largest e-commerce company in the United States, Amazon’s (AMZN) entry into video streaming is no surprise. The company rebranded its video services as Prime Video in 2018 and Amazon Prime members have access to a large library of movies and TV shows. Closely replicating Netflix, Prime Video offers instant streaming on Amazon products, major game consoles, set-top boxes and devices supporting the Amazon app.
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 “Game of Thrones” and “Sharp Objects,” or watch classics such as “The Sopranos.” They have also started producing their own original content including the award-winning "The Marvelous Mrs. Maisel" and "Transparent."
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.
Some 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 possible increased fees from internet service providers. Continued net neutrality will provide video distribution channels consistent profits moving forward.
The Bottom Line
As the 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 starting at $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, premium Hulu Plus subscriptions, and Hulu's Live TV services.
Prime Video adds to the robust list of amenities offered to Amazon Prime users. Closely replicating Netflix’s services, Amazon's Prime Video provides video content and original programming. Consumers benefit from Amazon's attempts to differentiate from competitors by adding features while attempting to keep costs constant.