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The U.S. Video Streaming Market

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In the video streaming market, U.S. subscription revenue was $24 billion in 2020, and it is projected to grow to $42 billion by 2025. Netflix, Disney, and Amazon will focus on original content.

Who are the biggest players in U.S. video streaming market?

This pie chart shows the average market shares of the six biggest players in the market in 2021 and 2022.

These six firms are the biggest players in the U.S. video streaming market, and Netflix and Amazon together represent nearly half of it.

In what type of market do video streaming services operate?

Video streaming services operate in oligopoly, a market dominated by a small number of interdependent firms. The market is a natural oligopoly that arises from economies of scale in video streaming. The minimum efficient scale of streaming—the number of subscriptions at minimum average total cost—is large.

What is the four-firm concentration ratio of this market?

The four-firm concentration ratio is the combined market share held by a market’s four largest firms, which is 72.8 percent in this market.

What is the Herfindahl-Hirschman Index (HHI) of this market?

We cannot calculate the HHI without an assumption about the remaining firms in the market. If 44 equal-sized firms make up the rest of the market (for a total of 50 firms), the HHI is 1,589. If 3 firms as large as Apple TV+ and 1 smaller firm make up the rest of the market (for a total of 10 firms), the HHI is 1,633. The true HHI is likely between these numbers.

How do Netflix and Amazon set their subscription rates?

Netflix and Amazon (and all the other streamers) set their subscription rates at the level that attracts the profit-maximizing number of subscriptions—the quantity at which marginal cost equals marginal revenue.

Thinking of video streaming content creation as a game, what are the strategies Netflix and Amazon can play? What are the payoffs?

Suppose that in the game played by Netflix and Amazon, each firm has two strategies:

So, the game has four possible outcomes:

Click here to watch a short video of the payoff matrix. The payoff matrix shows the firms’ economic profits—their payoffs—for the four possible outcomes.

Work these questions to check your understanding and get instant feedback.

Answer the following questions to check your understanding of the story.

Complete the following sentence about oligopoly:

In oligopoly, there is a ______________ number of firms competing, and the four-firm concentration ratio is ______________.

Wrong! - Review the definition of oligopoly. If there is a small number of firms, is the market competitive or concentrated? What if there is a large number of firms?

That's Right! - In oligopoly, the market is dominated by a small number of firms. Because the four largest firms account for much of the market, the four-firm concentration ratio is high.

Consider the game depicted by the following payoff matrix.

What is the outcome of this game?

Wrong! - What does Brett Shop do if Reagan Mart invests in R&D? What does Brett Shop do if Reagan Mart opens a new location? Repeat this process for Reagan Mart. Does either firm have a dominant strategy?

Correct! - Opening a new location is the dominant strategy for both firms, so both firms open a new location in the outcome of this game.

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