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Amazon’s Plans May Spell Disaster for Netflix

Posted By Justin Fritz On January 31, 2012 @ 2:55 pm In Justin Fritz,Small Cap,Tech and Innovation | 2 Comments

During Netflix’s (Nasdaq: NFLX [1]) earnings call last week, one question posed to the CEO, Reed Hastings, involved the company’s policy toward pay-per-view style movie offerings:

“What’s wrong with being everything to everyone and providing a one-stop shop for digital movies through Netflix?”

Hastings responded:

“I don’t think there’s a lot of brand strength in being… ‘everything for everyone.’ You gain profit and brand strength from being something important and precise. And we believe that unlimited [videos] for a low fee… is the core of our brand proposition. [Pay-per-view] would confuse the brand.”

That’s a sensible point on Hastings’ part. As I mentioned yesterday, Netflix’s renewed focus [2] on its core business is likely a big reason why investors drove shares higher yesterday.

At the same time, though, there’s certainly strong market potential in offering pay-per-view along with a monthly instant streaming subscription.

I myself watch Netflix streaming video just about every day. And as many Netflix subscribers know, popular or recently released movie titles are often missing from the “Watch Instantly” library.

That means I either have to add it to my DVD queue and wait a couple days for it to arrive by mail or – if I don’t feel like waiting – switch over to a different service that gives me the option to rent the video instantly.

But all it takes for Netflix to claim this revenue is a separate rental section on its website or a “rent now” button under the movie icons – not exactly a move that would kill its brand. At least it wouldn’t be as damaging as the Qwikster debacle. And more importantly, Netflix would capitalize on a demand that no other service caters to right now.

Unless Amazon (Nasdaq: AMZN [3]) moves in for the kill, that is…

Amazon Taking Aim at Netflix

Amazon has already elbowed its way into the streaming space with Amazon Instant Video. This essentially allows you to rent or buy movies to watch instantly and purchase episodes of currently running TV shows.

Also, Amazon Prime customers – who pay $79 a year for free two-day shipping and cheap one-day shipping for products bought through the retailer’s site – can instantly view 13,000 of Amazon’s 100,000 available TV titles for free.

So Amazon’s streaming service, not offered via a standalone subscription, hasn’t stepped on Netflix’s toes too much.

Until now.

The New York Post reported last week that Amazon will soon offer a subscription-based streaming service, just like Netflix. And although the company hasn’t confirmed the news, Reed Hastings echoed those suspicions in his letter to investors last week, saying he expects Amazon to “brand their video subscription offering as a standalone service at a price less than ours.”

I expect we’ll find out for sure if this is the case during Amazon’s earnings announcement this afternoon.

If it’s true, Amazon wouldn’t just be competing directly with Netflix for its subscription-based “binge viewing” audience. With the addition of its existing services, it would also become the “one-stop shop” that digital content consumers like me would love to see.

But even if Amazon begins to trample on Netflix’s turf, is its position in the market strong enough to make a real dent?

A Few Necessary Steps

I’m fully convinced that Amazon is capable of stealing Netflix’s marketshare, especially considering that Netflix is still on shaky ground.

But first, Amazon needs to…

  • Expand its Video Library: Right now, Prime customers can only stream 13,000 titles. Netflix subscribers, on the other hand, can instantly watch over 20,000 titles.
  • Offer the Service on More Devices: You can access Amazon Instant Video on a computer, Kindle Fire tablet, many Android devices, Xbox 360, Roku and select Blu-ray players and HDTVs. But it remains unavailable on some other popular devices that can  stream Netflix titles, like the iPad, iPhone, Wii and PS3.
  • Spread the Word: Unlike Netflix, consumers don’t instantly associate Amazon with instant video content. So if the company decides to make a strong push into on-demand video, it needs to ramp up its marketing efforts accordingly.

So while there may be a few hurdles for Amazon, as we’ve seen with the company’s push into e-reader space, it doesn’t historically have a problem with dominating new markets.

There’s a definite battle brewing in the streaming market space and we’ll be keeping an eye on Amazon’s earnings for any news regarding plans to beef up its efforts.

What do you think? Would you be interested in a “one-stop shop” streaming video offering from Amazon? Sound off in the comments below, or head over to our Google Plus [4], Twitter [5] or Facebook [6] page to give us your opinion there.

Good investing,

Justin Fritz


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[1] NFLX: http://finance.yahoo.com/q?s=nflx&ql=1

[2] Netflix’s renewed focus: http://www.wallstreetdaily.com../2012/01/30/netflix-rally-and-outlook/

[3] AMZN: http://finance.yahoo.com/q?s=amzn&ql=1

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