Amazon Just Made A Big Move To Take On Roku And Hulu

Amazon.com (NASDAQ:AMZN) has made no secret about its ambition in the streaming video space. The company is widely recognized as the second-largest streaming service, trailing only to Netflix (NASDAQ:NFLX) and its 149 million paying customers worldwide. While Amazon doesn't share its viewer specifics, it does boast more than 100 million subscribers to Prime, which includes access to its streaming video.

The e-commerce giant turned heads earlier this year when its wholly owned subsidiary IMDb (Internet Movie Database) announced it was expanding beyond short-form original series, celebrity interviews, and trailers to debut IMDb Freedive, an ad-supported streaming service that offered a selection of popular TV shows and hit Hollywood movies without a subscription.

Now Amazon is going further, positioning the platform to better compete with popular streaming options offered by Roku (NASDAQ:ROKU) and Hulu, which is controlled by Disney (NYSE:DIS).

A rose by any other name

Amazon announced this week that it is rebranding IMDb Freedive as IMDb TV. With its new name will come a greatly expanded selection of programming. Amazon said it will triple the amount of content on its platform in the coming months, adding "thousands of new titles."

In a press release, Amazon gave a hint of things to come, saying it had inked major new deals with Warner Bros., a division of AT&T, Sony Pictures Entertainment, and MGM Studios. IMDb viewers will now be able to watch box office hits like Academy Award-nominated Captain Fantastic with Viggo Mortensen and the Oscar-winning La La Land with Emma Stone and Ryan Gosling (marking the first time the film has appeared on an ad-supported streaming service). Amazon also said it will launch IMDb TV in Europe later this year, greatly increasing its addressable market at a time when Roku and Hulu are also both expanding their international operations.

Already stiff competition

Amazon CEO Jeff Bezos has long stated, "Your margin is my opportunity," and the ad-supported streaming segment will likely be the next growth wave in the industry. Evidence of this can be seen in recent results from Roku and Hulu -- two of the incumbents -- as well as Amazon's increasing attention to the space.

Roku's stock soared last month when the company reported blowout results in what has historically been its seasonally softest quarter. The streaming pioneer generated revenue of $206.7 million, up 51% year over year. The company had been guiding for $188 million, while analysts' consensus estimates clocked in at $192 million. Roku also produced smaller-than-expected losses, with a loss per share of $0.09, versus a $0.26 loss anticipated by analysts.

Roku was able to achieve these results on the back of impressive subscriber gains. Active accounts grew to 29.1 million, up 40% year over year, while streaming hours increased to 8.9 billion, up 74% compared to the prior-year quarter. Both signs of soaring engagement.

Growth is also climbing at Hulu. The platform, which recently came under Disney's control, now boasts more than 26.8 million paid subscribers. While Hulu has an ad-free tier, about 70% of its subscribers opt for the ad-supported plan.

Hulu doesn't report quarterly results, but the company generated revenue of $1.5 billion in 2018, up 45% year over year, and a record for the service.

Results of this magnitude have further piqued Amazon's interest, giving the company additional incentives to expand its existing offerings.

Not a threat anytime soon

History shows that ignoring competition from Amazon simply isn't an option. That said, there are a number of reasons Amazon probably won't pose a threat to either Hulu or Roku -- at least not anytime soon.

Hulu is already the third most widely used paid streaming service, behind Amazon Prime and Netflix, but by offering an ad-supported tier and a live-TV option, it offers something for everyone. Even in the face of existing competition, the company has continued its impressive growth. Now that Hulu only serves one corporate master -- Disney -- investors can expect to see a more streamlined strategy, which will likely lead to even stronger growth.

While Roku makes the majority of its revenue from advertising, the company licenses its smart TV operating system (OS) directly to manufacturers, which is helping set the stage for future growth. In the first quarter, 1 in 3 smart TVs sold in the U.S. used Roku's OS. That made it the No. 1-selling smart TV OS in the country. This gives the company a massive captive audience for its advertising.

While the expansion of IMDb TV certainly bears watching, investors should remember this key fact: Netflix has continued to succeed even in the face of competition from Amazon. By focusing on their respective niches, Roku and Hulu will likely enjoy a similar advantage.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, Netflix, Roku, and Walt Disney and has the following options: long January 2021 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool recommends Roku. The Motley Fool has a disclosure policy.

This article originally appeared in The Motley Fool.