Amazon's Prime service is now the No. 3 video-streaming service behind Netflix and YouTube.

But a new survey by Morgan Stanley shows that only one out of three Prime members actually uses Amazon's streaming-video service.

While the number of viewers is edging up, the survey found that Amazon might need to make some programming changes to really boost its audience.



Amazon's Prime video offering has made big gains in establishing itself as a rival to Netflix, but it still has some big obstacles to overcome before it can really challenge the streaming king.

Most notably: One in five subscribers to Amazon's Prime service still doesn't know it provides access to streaming videos.

Many Prime members simply "lack awareness" of the video offering, Morgan Stanley said in a report released Monday on the pay-TV industry.

Based on an online survey, the report found that Netflix not only still dominated the streaming-media industry but its lead was actually increasing. Yet the report had good news for Amazon too.

Some 30% of survey respondents said they watched videos on Amazon Prime. That made the service the third-most-popular online-streaming option, after Netflix and YouTube, according to the report. Better yet, the portion of people saying they watched Amazon was up more than 3 percentage points from last year, which was the biggest increase in viewership after Netflix.

Like Netflix, Amazon is gaining ground even as the traditional pay-TV industry slumps. With growing numbers of consumers either cancelling their cable or satellite TV service, or never signing up in the first place, many are turning to online alternatives. Among those who didn't subscribe to a traditional TV service, 33% watched videos on Amazon's Prime service, up from 27% last year. Some 51% of such households watched Netflix.

Many Prime video watchers like what they're seeing

The vast majority of Amazon Prime watchers — 74% — said they used the service simply because it came with their subscription to the service, which includes features such as discounted shipping and access to certain e-books and songs. But the survey indicated that a growing number of Prime customers were appreciating the video service.

"The Man in the High Castle" is among Amazon's most high-profile original series. Amazon

Some 35% of Prime members said they watched videos through the service because it offered a "broad selection of content." That portion was up nearly 4 percentage points from last year.

What's more, 28% said they used the video service because Amazon "adds content I like." That response was up nearly 6 percentage points from last year.

Survey respondents also appreciated that the Prime video service doesn't have commercials (26% gave that answer, up nearly 1 percentage point); is "cheap" (24%, up more than 2 percentage points); and that it can be accessed from "anywhere" (24%, up 2 percentage points).

But the survey also indicated that Amazon had some big challenges ahead it if wanted its Prime video service to continue to gain traction.

But Prime has some challenges ahead

One of the biggest problems was simply lack of awareness. Some 20% of Prime members didn't know that video was included in the offering, up from 18% a year ago.

That increase could be the result of Amazon's burgeoning number of Prime subscribers. The company announced last month that Prime members had hit 100 million, up from an estimated 80 million a year earlier. It may be the case that many of those new members signed up for the shipping discount or another of Prime's features, without realizing they could also watch TV shows and movies through it.

But Prime video has other challenges. For many Prime members, the service just didn't seem to be good enough to be worth their time.

Even as Amazon Prime Video has gained viewers, Netflix CEO Reed Hastings' company has increased its lead in the streaming-video market. Manu Fernandez/AP

About 30% of survey respondents who were Prime members said they didn't watch videos through it because they preferred other services. Many of them were likely watching Netflix — about 58% of Prime members watch videos through that service.

But members cited other reasons for not tuning in Amazon Prime video. Some 17% said they didn't watch because it didn't have their favorite TV shows, and another 17% faulted it for not having their favorite movies. And 14% said they didn't watch because it had "limited original programming."

Again, that last response may say more about Netflix than Amazon Prime. Amazon has produced notable original programming, including Emmy winner "Transparent" and the well-regarded "The Man in the High Castle."

But Netflix has become well known for its original programming, including such shows as "Stranger Things" and "Orange Is the New Black." Some 39% of survey respondents said its service offered the "best original programming" among not only all the streaming providers but also premium TV channels, such as HBO.