Pure-play OTT service providers
Netflix is facing increasing competition, not only from pay-TV providers who have started offering their own OTT (over-the-top) services, but also from pure-play OTT service providers.
TechCrunch reported on July 16, 2015, that Amazon (AMZN) entered into an agreement with Time Warner’s (TWX) HBO NOW. The deal will allow HBO’s original programming to be available to viewers on Amazon’s Fire devices.
Amazon and Hulu are looking to compete aggressively with Netflix (NFLX) in the video streaming market. Hulu is an OTT, ad-supported streaming service jointly owned by Fox Entertainment Group, The Walt Disney Company (DIS), and NBC Universal. Amazon’s Prime Instant Video lets users watch videos and movies as part of their Prime membership, which costs $99 per year.
Digitalsmiths conducted a survey of 3,144 consumers in 1Q15 to gauge consumer behavior with OTT services. As you can see in the above graph, a majority of users, or about 46.4%, subscribe to Netflix, 18.9% subscribe to Amazon (AMZN) Prime, and 11.4% subscribe to Hulu or Hulu Plus.
A large number of users, around 45.6%, don’t subscribe to any OTT service, which could result in Netflix capturing this user base in the long term. Around 7% of users in this survey subscribed to other OTT services like Sony’s (SNE) PlayStation Vue and Dish Network’s (DISH) Sling TV.
Why is Netflix so popular?
The reason for Netflix’s popularity among online users is its original programming. In 2Q15, around 90% of Netflix subscribers viewed the company’s original content. The company has entered into an original content agreement with The Walt Disney Company (DIS) in which Disney’s ABC Studios produce content exclusively for Netflix. You can get a diversified exposure to Disney by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY), which holds 7.64% of the stock.
Netflix’s popularity among users has also been due to the company’s $8.99 plan that lets users access HD (high-definition) streaming on two screens concurrently. Netflix offers plans that range from $7.99–$11.99 per month, which is less than HBO Now.