Can Amazon’s Prime Video finally convince consumers to cut the cable?

Traditional TV and cable subscriptions have been in decline for years, and streaming services are steadily converting consumers. Amazon (AMZN 2.64%) has now expanded its streaming business to include almost every facet of digital entertainment available. Because of this, the company could be the one convincing people to finally cut that cord.

A digital shop from a single source

Cord cutting is a global trend that has caused millions of people to ditch their cable and satellite TV services in favor of cheaper streaming options. From 2019 to 2021, US cable providers lost about 6 million subscribers, cable and satellite companies lost 25 million subscribers since 2012. Analysts predict the industry will lose another 25 million subscribers by 2025 as more and more people choose digital TV options.

Meanwhile, Amazon’s Prime Video retained a 19% market share in the streaming industry in 2021 and the first quarter of 2022, the second-highest share behind it Netflix (NFLX 8.20%), whose share is declining. Amazon started its digital video business with the launch of Prime Video, then Amazon Unbox, in 2006. Its original purpose was to allow customers to download movies. However, Netflix’s success and technological advances prompted the platform to shift to streaming in 2011. It started with a library of 5,000 streamable movies and TV shows that has since grown exponentially.

Prime Video now hosts a variety of entertainment services, such as buying and renting content, a streaming library of original and licensed content, live sports, and third-party channels. On the platform, Amazon has created a space very different from its biggest competitors like Netflix, HBO Max and Disney+, whose platforms are relatively one-dimensional. Prime Video has grown into an entire ecosystem built to meet almost any video entertainment need a Prime member could have.

Additionally, Amazon Channels launched in 2015 and is perhaps the biggest incentive for people to cancel their cable subscriptions. The service allows Prime members to add popular channels that have grown in popularity on traditional cable providers but can now be streamed directly through Prime Video. Prime members can choose from around 150 different channels to add, typically between $0.99 and $14.99/month extra. Some popular options include HBO, Showtime, Starz, Comedy Central Now, and PBS KIDS.

cost efficient

As the world continues to feel the effects of the pandemic and geopolitical events, the cost of living is increasing around the world. Many are cutting back on their discretionary spending, with entertainment being the first to go. Netflix has experienced this first-hand, with a loss of 200,000 subscribers in the first quarter of 2022, but Amazon Prime memberships are rising. U.S. Prime membership grew from 142.5 million in 2020 to 151.9 million in 2021, accounting for 58.2% of the population.

With most US households seeming anxious to keep their Prime subscriptions, Amazon has an opportunity to offer attractive entertainment options that don’t require a separate service or membership. A 2020 report found that the average cable bundle costs $217.42/month, more than the average total utility costs (electricity, gas, water, sewage and garbage) which came to $202.50. For 44% off, or $120/year, Prime offers a whole host of additional services, from free two-day shipping on Amazon to music and, of course, Prime Video. People can use the difference to add multiple Amazon channels and still pay significantly less. Last Prime Day even offered multiple channels like Starz and Showtime for $1/month for two months.

The biggest draw for cable right now is live sports, an aspect of entertainment that Amazon is steadily expanding within Prime Video. Subscribers can already add channels to access professional leagues with MLB.TV, NBA League Pass, NBA TV, and La Liga TV.

However, to expand its sporting opportunities, Amazon inked an 11-year deal in 2021 to pay $1 billion a year for the exclusive rights to air 15 Thursday night soccer Plays throughout the NFL season and one game per year during the preseason. Originally slated to begin airing in 2023, the historic deal now allows the games to launch on Prime Video in 2022.

What to look out for

As cable and satellite subscriptions dwindle and Amazon Prime memberships continue to grow, consumers will increasingly see the benefits of switching. A good indicator of where the market is headed is not only the growth in Prime subscriptions, but also the balance sheets of traditional cable providers.

For example most of Komcast‘s (CMCSA 3.33%) The business is “Cables and Communications” which accounts for 53% of sales. The media division includes revenue from the Peacock streaming service and is the second largest division at 19%. However, from Q1 2021 to Q1 2022, media revenues increased by 36.3%, while cable communications revenues increased by 4.6%. The numbers show that customers are far more interested in digital services than cable. As this trend continues and Amazon only expands its offering, the company could make a big profit.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook does not hold any of the shares mentioned. The Motley Fool has positions in and recommends Amazon and Netflix. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

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