Has Amazon Surpassed Netflix As The Top Streaming Service?

Amazon.com, Inc. (NASDAQ:AMZN) announced via a press release today that it has inked a deal with CBS Corporation (NYSE:CBS) that will see three of the latter’s series made available exclusively to Amazon Prime members for streaming. Included in the deal is CBS’s highly anticipated BrainDead, an alien/zombie/political mashup about nothing getting done in Washington because the members of Congress have had their brains eaten by aliens (based on a true story I presume). The deal will also include two other original series, the episodes of which will be available to Prime members just four days after their original broadcast (they are not digital-only series, they will still air first on CBS).

The deal expands upon the deal Amazon.com, Inc. (NASDAQ:AMZN) had in place with CBS Corporation (NYSE:CBS) for the streaming rights to Under the Dome and Extant. In addition, the deal will see Amazon nab the streaming rights to several SHOWTIME series and CBS films, including Penn & Teller, The Tudors, The L Word, MacGyver, and Pride.

The deal appears to be another blow to Netflix, Inc. (NASDAQ:NFLX), which just lost the streaming rights to content from Epix, a collaboration between MGM, Paramount, and Lions Gate Entertainment Corp. (USA) (NYSE:LGF), which went into effect today. Netflix users in the U.S no longer have access to the thousands of movies which were previously on the service courtesy of that deal, with Hulu nabbing rights to those movies in its place (Amazon also has a deal with Epix for those movie rights).

Instead, Netflix, Inc. (NASDAQ:NFLX) appears to be gambling that a smaller collection of exclusive content will keep its subscribers content (content, as in pleased; see what I did there?). However, with Amazon recently nabbing exclusive rights to stream past HBO shows (sorry Game of Thrones fans, but it will not be included in the deal), and also producing its own original programming, one has to wonder if Netflix will even be the preferred choice solely for exclusive content. Add in the fact that Prime members also get Amazon’s free 2-day delivery service and that’s looking like a pretty compelling deal compared to a currently-depleted Netflix. The only coup for Netflix is it’s huge push into other countries, while Amazon’s Prime Video Service is only available for Prime members in the U.S (though the Prime delivery service is available in other areas, like Canada and the European Union).

Netflix will gain exclusive access to Disney movies beginning next year, in addition to producing its own exclusive movies, which will include flicks by Adam Sandler (who doesn’t exactly have the cachet he used to), but in the meantime it certainly appears to have lost its crown in the U.S and it will be very interesting to see the effect that the Epix loss will have on Netflix’s subscriber numbers in the fourth quarter. It will also be interesting to see how elite investors react to Netflix’s shift in strategy. Hedge funds tracked by Insider Monkey were quite bullish on Netflix as of June 30, owning 15.40% of its shares, however that was before the announcement at the end of August that it would not renew its deal with Epix.

Hedge funds and elite money managers like Carl Icahn tend to have the largest amounts of their capital invested in large and mega-cap stocks like Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of 118%, beating the broader market by over 60 percentage points (see the details).

Overall, 50 investment firms that we track had long positions in Netflix on June 30, with their holdings valued at $6.15 billion. The aforementioned Icahn was not one of them however, having closed his Netflix position in the second quarter that was previously worth over $588 million and declaring that Apple Inc. (NASDAQ:AAPL) was now the better investment. While hedge funds owned less of Amazon’s shares at 5.20%, owing partly to its massive size, there were far more elite firms invested in the stock on June 30, 103 in all, with them holding $10.63 billion in shares. Chase Coleman’s Tiger Global Management was the top shareholder of Netflix in our database with a 2.57 million-share position valued at over $1.68 billion. Billionaire Ken Fisher’s Fisher Asset Management likewise had the largest position in Amazon, of 2.49 million shares worth $1.08 billion.

Amazon and Netflix have both been able to rebound from the August market correction and have remained relatively stable amid the volatility since then, which has allowed each to maintain most of its monster gains this year. Amazon is up by over 66%, while Netflix is still up by an astounding 112%. However, while Netflix is still the dominant streaming service globally, in the U.S at least, it appears to have lost its crown.

Disclosure: None