Netflix faces growing competition as new and old rivals step up their game

The new season of Orange is the New Black came online on Friday and binge watchers around the world celebrated. But the Netflix prison drama doesn’t have the stage to itself.

When season 6 of Game of Thrones premiered in April, HBO’s standalone video-streaming service HBO Now was overwhelmed by the wildling hordes of fandom.

Service outages and a surge of complaints ensued. But for HBO, the temporary glitches might be called a luxury problem. They signaled the spike in demand for HBO Now, launched a year earlier as a way to woo cord-cutters while providing a direct competitor to streaming giant Netflix.

In March, parent company Time Warner said HBO Now was nearing one million subscribers. Compared to Netflix’s 81.5 million globally, that’s a drop in the bucket.

But Netflix faces a growing field of challengers to its video hegemony. Following HBO’s lead, Showtime last year introduced its own standalone streaming services, and Starz followed suit in April. The same month, Amazon made its video service available for purchase separately from its Prime free-shipping program.

And then there’s Hulu, Netflix’s longtime streaming rival, which now has 12 million subscribers, as well as subscription streaming options from broadcast and cable TV networks such as CBS All Access and Univision Now, among others.

“Domestically, there’s no doubt the landscape has gotten a lot more competitive for Netflix,” said Tuna Amobi, media and entertainment equity analyst, SP Global Markets Intelligence.

Netflix is still the big beast on the block but US downloads of HBO Now, Amazon Video, Hulu and Showtime apps via Apple’s App Store and Google Play together surpassed those of Netflix in April for the first time, according to app analytics firm Sensor Tower.

Their relative gains partly reflect Netflix’s far higher adoption to date. About 40% of US broadband homes already have Netflix, while the other subscription video services individually don’t approach that level, according to a report last week by Nomura Securities analyst Anthony DiClemente.

Likewise, the charts in the iOS App Store show Netflix is No 1 both in free app downloads and among top-grossing apps. With a lift from the recent Thrones premiere, though, HBO Now ranks as the second-highest grossing app, and one of six video apps in the top 10. Others include Hulu, Starz and Crunchyroll, a niche app for anime enthusiasts.

A year ago, there were only two video-streaming apps among the 10 top-grossing titles.

Viewership figures are harder to come by for so-called over-the-top services like Netflix or HBO Now. Both Nielsen and comScore have rolled out competing services for measuring audiences across digital video and TV platforms, but neither has made that data publicly available yet.

But trends in traditional TV viewing highlight the opportunity Netflix and its rivals are chasing. Cable TV ratings, for example, fell about 5% in May from a year ago, according to Nielsen, similar to the drop-off the previous two months.

And in April, TV viewing via Internet-connected devices was up 71% from a year earlier, accounting for 6.8% of total TV usage among viewers 18-49. That’s a welcome sign for streaming video providers.

“Everybody recognizes that linear television is declining, it’s inevitable,” said Porter Bibb, managing partner of Mediatech Capital Partners. The drive to pull in viewers increasingly shifting to on-demand alternatives has touched off an arms race to amass original or exclusive content.

Netflix, known for homegrown hit series like House of Cards and Orange Is the New Black plans to spend $5bn this year on new programming and licensing of TV shows and films.

Amazon has also ramped up content investments with original programming like Transparent, The Man in the High Castle, Bosch and Hand of God. It will also debut Woody Allen’s first-ever TV series this year.

Hulu, owned by Fox, Disney and Comcast Corp, boasts its own slate of shows such as The Mindy Project and Casuals, along with high-profile projects like the JJ Abrams-produced 11/22/63. Next year it also plans to offer a “skinny bundle” of live sports and news channels independent of a cable or satellite TV subscription.

As such, Bibb suggested Netflix is facing more pressure from rising content costs than threats to its subscriber base. At the end of the first quarter, Netflix’s content obligations – payments for licensing or producing programming over several years – reached $12.3bn.

Driving up that total has been its aggressive international push. The company in January launched its service in 130 new countries, reaching 190 overall. Part of that effort has involved acquiring new content tailored to local markets worldwide.

To help cover its higher spending, Netflix is rolling out a price increase this year for its standard HD plan to $9.99 a month. That’s up from $8.99 for more recent members, and $7.99 for longer-term customers grandfathered in at the lower price.

Whether competing streaming services will benefit from Netflix’ price hike isn’t yet clear. But Standard Poor’s Amobi said that, for now, rising demand is lifting all boats. “This is still a growing pie, and not at the point where they’re starting to cannibalize each other,” he said.

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