Amazon (AMZN) Takes on Netflix (NFLX) Streaming Video

by Anthony John Agnello | January 31, 2011 12:23 pm

Amazon.com (NASDAQ: AMZN[1]) has always embraced new technology in its never-ending pursuit of consumers’ digital dollars. From its one-stop retail model to its Kindle electronic reader, Amazon continues to break new ground in the modern retail business.

But it has had a few notable blunders in its quest to stay the dominant shopping site for Americans. When music made the jump from CD to MP3, Apple Inc. (NASDAQ: AAPL[2]) and its iTunes all but cornered the market in 2003. Amazon didn’t open its own MP3 store until late 2007. And as Netflix (NASDAQ: NFLX[3]) has revolutionized the home video biz via online streaming, Amazon has been left in the dust selling DVDs and the occasional downloadable movie with nary a streaming title to be seen.

But at least on the streaming video front, the online retailer is looking to make up lost ground. Amazon.com is overhauling its premium shopping service to help it evolve into an on-demand, instant video streaming akin to Netflix.

Rather than start up a new brand and service for streaming, Amazon is using its premium Prime membership service as a springboard. Technology blog Engadget ran a story over the weekend that an unnamed Amazon Prime member could suddenly access on demand streaming video option amongst Amazon’s other Video On Demand options. A screenshot of the option reads: “Your Amazon Prime membership now includes unlimited commercial-free, instant streaming of 5,000 movies and TV shows at no additional cost.” The option was quickly removed from Amazon’s pages and the company declined to comment, but reports this week indicate the sneak peek will become a reality very soon.

Leveraging Prime as a Netflix competitor is a wise move, since there is a built-in audience of loyal Amazon.com surfers to fuel the first push. Also, this will help Amazon win more physical goods sales if it works. The $79 per year service has traditionally offered users shipping discounts like free two-day shipping on every order. If Amazon could lure Netflix customers away with a cheaper service — a Netflix Instant Streaming subscriptions costs $95.88 per year when you add up the monthly fees — and a broader selection of titles, Amazon Plus could be the next big thing for the company.

And the marketing potential is enormous. Just imagine — you watched the first few seasons of The Office by streaming them on Amazon Prime. When the latest season debuts on DVD, you get an email or a coupon to buy it. Netflix simply can’t compete with that model without launching a retail storefront of its own.

Though the initial report of just 5,000 titles would indicate Amazon Prime will lag behind Netflix, other evidence suggests Amazon is working fast to bolster its streaming video content library. In September of last year, the Wall Street Journal reported that Amazon was in talks with Fox parent News Corp. (NASDAQ: NWS[4]),  Viacom (NYSE: VIA[5]), Time Warner (NYSE: TWX[6]) and others to provide television content to its rumored “Netflix competitor.” The company also purchased the remaining shares of Lovefilm International, a U.K.-based video rental and streaming video service similar to Netflix, earlier this month.

Amazon seems to have all the pieces necessary to take on Netflix in place. All that’s left now is to see where the audience goes.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.

Endnotes:
  1. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  2. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  3. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  4. NWS: http://studio-5.financialcontent.com/investplace/quote?Symbol=NWS
  5. VIA: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIA
  6. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX

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