Netflix has a stranglehold on its competition, but the streaming wars aren't over. Here's how Disney and Amazon could dethrone the dominant streamer. (2024)

"Netflix is making money; everyone else is losing money," said Jason Bazinet, a media analyst at Citigroup. "Netflix will not license out its originals to anyone else, but all the other Hollywood studios are licensing out their content to Netflix."

A decade ago, media firms like Disney and Paramount simply licensed their best shows to Netflix, until its success convinced them to challenge their top customer head-on. In hindsight, some analysts now believe trying to beat Netflix at its own game was a mistake.

"Netflix won the streaming wars in 2009 when they started streaming," said Tim Nollen, a media analyst at Macquarie. "They've always been the winner."

Other analysts aren't sure Netflix will keep its lead. The streamer has gone from winner to loser and back again, but staying on Wall Street's good side may be tougher going forward.

"I think it's a little bit ridiculous, to be honest," Bazinet said when asked if Netflix has won the streaming wars. He downgraded his rating on Netflix's stock to neutral after years of recommending a buy, reasoning that investors overreacted to its latest report.

How Hollywood can beat Netflix at its own game

Hollywood stalwarts can compete in streaming, Bazinet argued — provided the media industry first consolidates even further.

If the media giants combine forces, they could combat the challenge of climbing cancellation rates in streaming with a wider and more consistent variety of content — from entertainment to sports to news.

"Another round of consolidation just makes the traditional media companies' flywheel stronger," Bazinet said.

That "flywheel" is when content spending draws in users, keeps them engaged, and translates to more time spent watching and — by extension — a lower dollars-spent-per-hours-watched ratio. Netflix set itself apart by following that same playbook.

Netflix still has the most buzzworthy shows, even though its rivals tried to play catch-up by "spending like drunken sailors," as Jessica Reif Ehrlich, a media analyst at Bank of America, put it.

"It's all about engagement, and Netflix has become the default replacement to the pay-TV bundle," Reif Ehrlich said. "They have such strong content that covers so many genres and demographics, and they have almost a 10-year lead on everybody else."

Time spent watching Netflix is more than double that of its closest direct streaming competitor, according to Nielsen data from December.

Bazinet said other streamers can imitate Netflix by offering more segmented plans, outside of ad and ad-free options. By letting customers choose the video quality they want and how many devices they need access to, Netflix improves user satisfaction while squeezing the most money out of each user.

"Some people are price sensitive, and they want all the bells and whistles, and other people don't have that much money, and they just need to go from A to B," Bazinet said.

To truly succeed against Netflix, streamers need either comparable subscribers or revenue.

The two biggest threats right now are Disney — which has about 220 million subscribers across Disney+, Hulu, and ESPN+ — and Amazon. Although Amazon doesn't break out its Prime Video subscribers and financials, it recently estimated 115 million monthly viewers for the streaming service's ad tier, and it reported $10.5 billion in overall subscription revenue last quarter, compared to Netflix's $8.8 billion in revenue.

Disney can dominate due to its bundle

Disney has the best chance to beat Netflix, according to Bazinet and three other analysts.

"You got Netflix and Disney, and then there's everybody else that's way behind," Joe Bonner, a media analyst at Argus Research, said of the streaming industry.

The Mouse House controls Hulu and ESPN+ in addition to its flagship streamer. Its path to victory depends on successfully combining Disney+ and Hulu, segmenting out its plans for the combined streamer, and focusing its content spending there, Bazinet said.

Live sports from ESPN could also be a huge asset for Disney+, Bonner said.

"It's a differentiator from Netflix," Bonner said. Netflix has also been expanding into sports and live entertainment content, but ESPN has a decades-long lead.

UBS media analyst John Hodulik said that together, Disney+ and Hulu could continue growing subscribers while hiking prices like Netflix has — becoming a true competitor.

"Disney — through their price increases; through some cost savings; frankly, from the synergies that come from the Hulu/Disney+ combination — we think they get to profitability," Hodulik said. "I'm not sure the other companies have the same equation."

Disney's bundle, which packages its three streamers at a discounted price, is its greatest asset, said Macquarie's Nollen. Pairing complementary content in one package reduces cancellation rates by encouraging customers to stay when their favorite TV franchise or sport isn't airing.

"You bundle all that together, and — especially if you take ESPN over the top, and that ends up being successful — Disney could be very powerful and up there in the same category as Netflix, in terms of subscribers and depth and breadth of content and ability to produce more content," Nollen said.

Amazon throws its hat in the ring

An often-overlooked contender in the streaming wars is Amazon, even though its streamer has the largest share of watch time after Netflix in the US, according to Nielsen. Streaming isn't the e-commerce and cloud-computing behemoth's main business, but it's succeeded anyway, partly because its platform offers live sports.

Amazon just gave its streaming business a jolt by adding advertisem*nts to Prime Video, unless subscribers pay an extra $3 per month. That move may pad its bottom line by billions since ads are served to viewers by default — unlike Netflix's strategy for its burgeoning ad tier.

"I think it's a very good move from Amazon's perspective, and it's potentially dangerous for others because of how many Amazon Prime subscribers there are in the US," Nollen said.

While other streamers are slowly growing their ad tiers, Amazon added tens of millions of users overnight — users it already has data on and has sold to. Nollen said Amazon would flood the market with cheap ads and crush its competition like it did in e-commerce.

Amazon's entry into the ad-supported streaming landscape could pose the biggest threat to media companies since Netflix first launched — all while challenging Netflix itself.

"Anybody that is trying to sell streaming ads — I don't want to say they're at risk," Nollen said. "I would say they have a new competitor who has a large audience and therefore provides more competition out the gate than, for example, when Netflix entered the market as a new competitor."