Amazon to Take On Netflix?
A potential showdown may be looming for Netflix (NASDAQ:NFLX), the world’s leading video content provider as the leading online retailer Amazon (NASDAQ:AMZN) is apparently looking to step into the world of subscription based online streaming.
At present time, each company is a major player in the world of online streaming. Netflix, in addition to its home delivery rental service, also provides video streaming on a monthly basis to over 20 million customers worldwide. Amazon, in addition to paid video-on-demand, also provides streaming content to those members of “Amazon Prime,” its shipping service. For $79 a year, Amazon Prime customers, who number between 7 to 8 million, get unlimited free two-day shipping and access to selected streaming content. Netflix charges currently about $7.95 per month for its own streaming library. It is believed that Amazon’s new service will likely operate as its own, standalone product, just like Netflix’s.
The move comes at a time where Netflix, while the name brand for internet streaming, may be vulnerable, coming off of a year of very unpopular price increases (which actually saw its online streaming priced as a standalone product separate from home delivery) and the embarrassing Qwikster debacle that has seen some subscriber turnover and other individuals downgrading their service.
Amazon, however, though the leading online retailer, has not been above controversy either over the past year, due to its avoidance of sales taxes in almost every state and some poor publicity about working conditions in some of its warehouses. Amazon is also a source of resentment for many in the film and television industry since, like Best Buy (NYSE:BBY) and some others, it has traditionally used the sale of DVDs as a loss leader for encouraging customers to buy other products on their site. Some in the entertainment industry feel …
that as a result of years of this, the value of Hollywood’s home video products were artificially diminished (though with the move to streaming that probably would have been inevitable anyway), and may have potentially cost the industry millions and millions of dollars.
This later part is very important, as success in the realm of digital streaming is going to be dependent on Amazon reaching deals with studio licensees for their video content. Amazon has existing agreements for its Prime membership service, including film and television streaming deals with NBC Universal (NASDAQ:CMCSA), Disney (NYSE:DIS), and Fox (NASDAQ:NWSA). Also, this past summer it paid $100 million to CBS (NYSE:CBS) to access 2,000 hours of television programming. For a full streaming service, however, Amazon will likely have to renegotiate those deals and sign new ones, including many exclusively. As eMarketeer Paul Verna has stated, ‘they won’t always get (exclusivity),but they need to differentiate themselves. Almost everyone agrees: that will not come cheaply.
The company seems to realize this, and though it has remained quiet publicly, many sources state Amazon is getting prepared to spend big money to get a streaming subscription service off the ground. Right now, Amazon pays most of its rights fees on a per-subscriber basis.
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