Battle rejoins between TV’s two biggest stars: Netflix and Amazon | Tech Industry
The contest for cinemagoers and TV viewers was once fought between studios, film stars and broadcast networks with captive audiences. But in the reshaping of the entertainment industry for the 21st century there are only two tribes that matter: Netflix and Amazon.
And the competitive terrain has changed. Blockbusters and primetime must-sees are not cornerstones of either business, nor are they chasing ticket sales or advertising dollars. The two US companies are vying for subscriptions that buy comedy, drama, light entertainment and factual programming – all funded by multibillion-dollar budgets that dwarf anything an individual studio or TV broadcaster can offer.
This month, Netflix and Amazon – through its Prime Video service – are going head to head with new releases that typify how streaming has changed the cultural range of broadcasting and film. On Friday, Amazon launched The Romanoffs, a $50m (£38m) anthology drama from the creator of Mad Men that has had mixed-to-scathing reviews. Next week, Netflix screens the second series of Making a Murderer, a true-life crime documentary that has gripped millions around the world.
Netflix’s overwhelming focus on TV, as opposed to the competing demands for money and Jeff Bezos’s attention at Amazon, has put it in front as the world’s most popular service. With more than 130 million subscribers globally, Netflix currently enjoys a healthy lead over Amazon, which has an estimated 75 million users of Prime Video, but the question of which service will ultimately triumph remains.
Netflix has committed to the bigger spending of the two, with an $8bn annual budget that will be spent on 700 original TV shows and 80 films this year alone. While Amazon’s spending has been creeping closer, to an estimated $5bn-$6bn, it has not been willing to match its rival so far.
Netflix has about 25,000 hours of content on its UK service and Amazon about 19,000, according to research from Ampere Analysis. The most significant difference is the strategy relating to original content, or shows commissioned and paid for by Netflix and Amazon, where the biggest budgets are allocated. In this field, Netflix is also ahead. It has 595 original titles available in the UK, whereas Amazon has only 120.
“It’s not a volume play for us. That’s probably what sets us aside from our competitors,” says Georgia Brown, director of European originals at Amazon Studios, at an event showcasing new productions this month.
However, a deluge of content and shrewd commissioning has also given Netflix the edge in awards. Netflix tied with US cable channel HBO for the most wins at the Emmy awards this year – 23 each, including the creative arts Emmys for technicians, covering shows including The Crown and Godless. The streaming company also broke HBO’s 17-year record for most nominations, with 112. Amazon managed eight Emmys including several for The Marvelous Mrs Maisel, which won the coveted best comedy award.
“Netflix is definitely winning at the moment,” says Boyd Hilton, entertainment editor at Heat magazine. “They don’t give out viewing figures but in terms of pop culture phenomena and buzz, Netflix has a big list of shows – such as Making a Murderer, Stranger Things and House of Cards – that have punched through. Amazon doesn’t feel like it quite has ‘must see’ shows yet.”
Netflix subscribers show more dedication to the service, with 75% using it at least once a month, compared to half of Amazon Prime Video users, according to Ampere.
Earlier this year it emerged that Netflix and Amazon are now more popular in terms of subscriber numbers in the UK – more than 15 million combined – than the total number of people signed up with the UK’s pay-TV services, including Sky and Virgin Media. And the BBC has admitted that 16-to-24-year-olds now spend more time with Netflix in a week than with all of BBC TVincluding the BBC iPlayer.
Having a viewing culture dominated by two services with no central scheduling also raises questions about the impact on culture. With streaming services offering an on-demand alternative to the traditional model of TV broadcasting, is the “watercooler moment” – gossiping at work about the latest episode of a show – becoming a thing of the past?
Citing two hit BBC dramas, Hilton disagrees. “Well over 10 million people watching Bodyguard and 8 million watching Jodie Whittaker’s Doctor Who is proof that watercooler TV will never die,” he says. “The streaming services offers something different, emphasising bingeing. Fans of Netflix still cluster around iconic shows like Stranger Things and The Crown, but in a more dissipated way.”
The longevity of Netflix’s dominance is also cast into doubt by its balance sheet. After a surprise failure to hit subscriber targets stripped $30bn from Netflix’s stock value earlier this year, the streaming service’s next financial update on Tuesday will be closely watched. There are concerns that its constant need to pile on millions of subscribers to fund the TV shows and films that are its lifeblood may be starting to be stretched.
The company is heading for negative free cash flow of about $4bn this year (meaning its expenditure on content, marketing and talent is exceeding what it is making from subscribers – about $16bn – by about that sum). The company, which has total liabilities of around $30bn, has waved away concerns and remains a hot stock. But it needs to remain in high growth mode.
“If Netflix growth doesn’t hold steady, there is a risk in the future of it being unable to service that spend,” says Richard Broughton, analyst at Ampere. “However, if Netflix growth does slow, a moderate one- or two-dollar increase in price should solve the problem.” Price increases in the past have resulted in very little customer loss, he says. A standard Netflix subscription costs £7.99 a month in the UK and $10.99 in the US.
The questions over Netflix’s financial model do not apply to Amazon: for the online retail giant, TV is just a means to an end. Prime Video is one of the many perks that come with its £79-a-year Prime subscription, which offers services such as next-day delivery. Amazon customers signed up to Prime, of which there are estimated to be about 90 million globally, spend more time and money on the site – which further fuels its almost $200bn in annual sales.
“It is more difficult to measure the success of Prime Video as it is a different beast driving the Amazon retail business,” says Broughton. “Prime Video is going great guns for its Prime subscriber base. By spending a little over half what Netflix is, Amazon is not getting bad value.”
Broughton points out it increasingly appears that there doesn’t need to be a single victor in the Netflix-Amazon contest. Ampere’s research shows that of Netflix’s 9.4 million UK subscribers, 47% also have and watch Prime Video. And just over 70% of Amazon’s 6.4 million UK Prime Video customers also have Netflix.
“I don’t think there needs to be a winner,” says Broughton. “People are quite happy taking both.”
However, if Amazon – or for that matter Apple or Google – wanted to dominate global streaming, there is little Netflix could do about it. On paper Netflix is a big fish: its market value of $154bn is within spitting distance of the world’s biggest media company, Disney at $173bn, but in Silicon Valley terms it is a relative minnow. In September, Amazon became the second company to reach a trillion-dollar valuation – Apple was the first to pass that mark in August – while Google is at $800bn.
“Amazon is seven times bigger than Netflix. Amazon can do anything it wants and it is just fiddling about in TV at the moment,” says Alex DeGroote, an independent media analyst. “Netflix have to punch the lights out continuously: they can’t put a foot wrong. Amazon isn’t as committed as Netflix, not yet, but they are coming. Amazon has a track record of strategic acquisitions, like buying Whole Foods in retail, or Apple could be another bidder. I don’t think Netflix will exist independently in two years’ time.”
Life after pay-TV
Here are the viewing options for UK households considering whether to drop their main cable or satellite subscriptions.
Cost From £5.99 basic to £9.99 premium per month; vast majority take £7.99 plan
What’s on it About 5,000 titles: 3,600 movies and 1,400 TV shows
Pros Access to hot dramas such as The Crown and Stranger Things, as well as a back catalogue of classics such as Top Gear
Cons Disney has pulled its content from Netflix in the US and is likely to follow suit in other markets. The service produces so much content that many shows are cancelled quickly, to the disappointment of fans. No live sport or shiny floor entertainment shows like Strictly Come Dancing
Cost £79 a year for subscription to Prime, which includes Prime Video
What’s on it About 7,400 titles: 6,300 movies and 1,100 TV shows
Pros Hits such as The Man in the High Castle, The Marvelous Mrs Maisel and the acclaimed All or Nothing sports documentary series. Moving into live sport with the NFL in the US, and in the UK with the US Open, ATP tennis and next year, some Premier League football. Subscribers also get other Amazon perks such as Amazon Music and free one-day delivery on purchases
Cons Amazon has not committed the huge sums to content that Netflix has, so there are not as many breakthrough hits and a much more limited range of original content
NOW TV (FROM SKY)
Cost Variety of daily, weekly and monthly options. From £7.99 for a Sky Sports day pass to £7.99 a month for entertainment channels and box sets
What’s on it Depending on the package, 300 box sets, more than 1,000 films, with a new premiere daily, live sport and dozens of entertainment channels
Pros Customers don’t have to have a traditional annual subscription package: it is contract-free. Deals with HBO and movie studios means it gets films first after cinema release, and shows such as Game of Thrones
Cons Doesn’t have the huge range of content that Netflix does
Cost No subscription: a Freeview set-top box sells from about £70
What’s on it The UK’s free-to-air channels and catch-up players such as the iPlayer, All4 and UKTV Play
Pros Simple and cheap way to watch free-to-air TV
Cons Very limited content. No access to any pay-TV services, including Netflix and Amazon