Amazon’s video service is getting closer to becoming the new Netflix — if it can just make Prime members realize it exists (AMZN, NFLX)

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: about one in five subscribers to Amazon’s Prime service still don’t know it provides access to streaming videos.

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

Based on an online survey, the report found that Netflix not only still dominates the streaming media industry, but its lead is increasing. But the report had good news for Amazon too.

Some 30% of survey respondents say they watch videos via 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 three 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 don’t subscribe to a traditional TV service, 33% watch videos via Amazon’s Prime service, up from 27% last year. Some 51% of such households watch Netflix.

Many Prime video watchers like what they’re seeing

The vast majority of Amazon Prime watchers — 74% — say they use the service simply because it comes with their subscription to the service, which also includes features such as discounted shipping and access to certain e-books and songs. But the survey indicates that growing numbers of Prime customers are appreciating the video service for its own merits.

“The Man in the High Castle” is among Amazon’s most high-profile original series.

Some 35% of Prime members say they watch videos through the service because it offers a “broad selection of content.” That portion was up nearly four percentage points from last year.

What’s more, 28% said they use the video service because Amazon “adds content I like.” That response was up nearly six percentage points from last year.

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

But the survey also indicates that Amazon has some big challenges ahead it if wants its Prime video service to continue to gain traction.

But Prime has some challenges ahead

One of the biggest problem was simply lack of awareness. Some 20% of Prime members don’t know that video is 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 doesn’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.

About 30% of survey respondents who are Prime members said they don’t watch videos through it because they prefer other services. Many of them are 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 doesn’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 has “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.

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