by Anthony John Agnello | February 8, 2012 1:01 pm
It’s a busy week in the streaming video business. Netflix (NASDAQ:NFLX) kicked off its venture as a distributor of original content with its launch of the series Lillyhammer on Monday. Then Coinstar‘s (NASDAQ:CSTR) Redbox and Verizon (NYSE:VZ) found strength in numbers and announced the formation of a new streaming video joint venture that is intended to compete head to head with Netflix.
And on Wednesday, Amazon (NASDAQ:AMZN) quietly announced that its own streaming business, Amazon Instant Video, will now offer content from a fleet of Viacom (NYSE:VIA) television networks.
You’d be forgiven for thinking that that last initiative is less impressive than the others. Viacom has been very canny in growing profit from licensing fees from streaming partners. Is it surprising that Viacom brought Nickelodeon, MTV, and Comedy Central shows to Amazon Instant Video? Not even vaguely. It was only a matter of time before Viacom brought its wares to Amazon.
The new content deal with Viacom, however, does demonstrate that Amazon is doing the smart thing to grow its streaming business, by slowly build its library of content. When Amazon opened Instant Video as part of its Amazon Prime premium subscription service in January 2011, it offered a library of just 5,000 movies and TV shows. This new Viacom deal expands that library to more than 15,000 titles.
Slow and steady wins the race, right? What else does Amazon need to do to fortify Instant Video in the fight against Netflix, Redbox, and others?
At the start, Instant Video was a fine way to help drive subscriptions to Amazon Prime. Up until last year, the $79 per year Amazon Prime subscription offered shipping discounts, and little else, on goods purchased on the Amazon site. But Instant Video transformed Prime into a content proposition. It has since offered access to a library of e-books in addition to Instant Video. If Amazon wants its streaming business to grow fast, it’s time to offer it as a separate service, independent of Amazon Prime. This is likely to happen, and soon. Netflix itself said it expects Amazon to offer Instant Video subscriptions at a rate lower than the $7.99 per month Netflix chargees for a streaming subscription.
Cheap streaming-only subscriptions will get Amazon only so far. Accessibility is also a problem for Amazon’s service. In addition to PCs, a large range of televisions, set-top boxes, and Blu-ray players–from manufacturers like Sony (NYSE:SNE), Panasonic (NYSE:PC), and TiVO (NASDAQ:TIVO), among others–supports Instant Video. But the only portable device that supports Instant Video at this point is Amazon’s own Kindle Fire tablet. No video game consoles support the service. According to research group Nielsen, video game consoles represented 50% of Netflix’s instant streaming audience. Mobile phones and iPads account for an additional 6%. If Amazon Instant Video is going to become a valuable source of income to Amazon—Netflix brought in $876 million in revenue last quarter—it needs to be in the places that people watch streaming video.
The company has this one covered, as demonstrated by Wednesday’s Viacom announcement. Amazon is actively seeking new content partnerships to grow Instant Video’s library.
Netflix’s push into original content has changed the stakes, though, and it may no longer be enough for a streaming video service to just offer the same back seasons of Mad Men and the complete Chappelle’s Show. It will be crucial for all competitors in the space to offer exclusive television and movies through their service. Netflix has decided it’s more cost-effective to make that exclusive content itself rather than pay partners like Liberty Media‘s (NASDAQ:LSTZA) Starz for the privilege of hosting Starz wares. Amazon has shown enthusiasm for growing its own content as well on the publishing side, so original programming isn’t necessarily out of the question. With just $9.6 billion in cash at the moment, though, Amazon likely has other spending priorities to address before it creates its own TV shows. So for now, build the library. It will be time to gun for exclusives soon enough.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
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