Netflix’s Competition Could Increase in the Future

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HBO made strong progress in the online streaming market

In the last part of this series, we discussed how Netflix (NFLX) leads the share of Internet traffic on computers and networks in North America. Although Netflix’s position in the video streaming market is strong, competition is increasing against it—something it needs to watch out for in future.

Particularly, Time Warner’s (TWX) HBO gained traffic share in the past year, mainly due to the popularity of Games of Thrones. According to the Sandvine report, HBO Go and HBO Now totaled 4.1% of the downstream Internet traffic in North America in March 2015—an almost 300% increase over the last six months. Another reason for HBO’s increasing popularity is its licensing agreement with 21st Century Fox (FOXA) to provide access to movies.

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Amazon is looking to increase its video content

Amazon (AMZN) has also started to become a major threat to Netflix. Users get to watch videos and movies for free along with the $99 per year Amazon Prime program. Amazon also increased its content. Now, it’s looking to produce and acquire 12 original movies per year. We discussed this in Amazon looks to produce original movies to grow its Prime program.

This is the main reason why Amazon is only second to Netflix in terms of users accessing an online streaming service. This research is done by SunTrust Robinson Humphrey and SurveyMonkey Cyber Indices. It uses the survey done on 1,500 US respondents aged 13 years and above. As the above chart shows, Netflix is used by about half of the surveyed respondents, while Amazon’s Instant Video service is used by 30% of the respondents.

To gain diversified exposure to Amazon, you can invest in the Consumer Discretionary Select Sector SPDR (XLY). XLY invests about 7% of its holdings in Amazon.

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