It’s official — Netflix, Inc. (NFLX) is now in some serious trouble. Fringe streaming-video service provider Amazon.com, Inc. (AMZN) has quietly transformed itself from fringe player to mainstream choice, and as of today, it’s standing toe-to-toe with Netflix.
Last night, Amazon announced it would offer access to its digital video content on a monthly subscription basis. Previously, streaming video was only available to Amazon Prime members who paid $100 per year (which also included free shipping from Amazon.com) or as a one-time purchase of a particular show or movie.
The real jab at Netflix is the price of this service: It will only cost $8.99 per month, a dollar less than Netflix’s standard plan. The price point will also make Amazon competitive with Hulu, which costs $7.99 per month with ads, and $11.99 per month without advertisements.
The Seattle-based company also unveiled a monthly version of its Prime service for $10.99 per month. This offer includes access to its on-demand video content, plus the aforementioned free shipping for items ordered at its e-commerce site.
It’s going to be tough for Netflix to convince users it’s got the best deal now, even though it’s got the bigger and better content library.
Amazon Sweetens the Pot
To be clear, the value of either outfit’s on-demand video library is a subjective matter. But broadly speaking, Netflix has the better library, including well-loved original programs like “Orange is the New Black” and “House of Cards.”
Amazon is no slouch on the content front, however, turning heads with its own original programs such as “Mozart in the Jungle,” and scoring some exclusive flicks and series like “Downton Abbey.”
Sure, one could argue Netflix may have more titles (though even that’s unclear anymore), but a large slice of its available content is mostly unwatched stuff. No one could argue, however, that Amazon’s library isn’t getting bigger and better all the time. It’s good enough now to directly take on Netflix.
It’s probably not going to be the content library, however, that lures a wide swath of would-be defectors out of the Netflix camp and into the Amazon Prime camp — both libraries are impressive, and there’s more overlap than not. Rather, the biggest lures are going to be the monthly service fee — as opposed to the large $100 annual payment for Prime — and the fact that a good deal of Amazon Prime content can be downloaded and watched offline at a later time. Netflix doesn’t offer such a feature.
Truth be told, Amazon may have been able to skip the $8.99 option for access to its on-demand video library and just offered its $10.99 monthly subscription fee (adding free shipping to the subscription) to Amazon Prime and done just as well. See, the issue holding would-be customers back from Prime wasn’t the cost, but the year-long commitment.
That said, most consumers will pony up an extra couple of bucks per month — likely a large number of new customers — just to sidestep shipping charges that apply at most other e-commerce venues.
One of the more underappreciated aspects of Amazon Prime is the ability to download some of that digital content and play it back at a later time.
Only Amazon Fire, Android and iOS devices perform this function through the Amazon app, and not all digital video content can be downloaded for a later viewing. It’s been a much-loved option for some Prime members that Netflix just doesn’t make available.
Indeed, in 2014 Netflix director of corporate communications and technology Cliff Edwards bluntly said downloadable, offline-viewed content was “Never going to happen” for Netflix members.
Bottom Line for Amazon (AMZN) Stock
As for the impact the recently unveiled monthly pricing may have on the value of AMZN, there’s no way of knowing for sure.
Amazon is a constantly moving target, and profitability has never been the point (nor has it been demanded). There’s little doubt, however, the new monthly digital video options — with or without free shipping — will bring more customers to the Amazon table to be monetized in a variety of ways.
That’s the key.
Amazon’s goal is to become a fixture in your house and on your devices. Once you’re in the Amazon ecosystem, it’s only a matter of time before it finds a way to extract some profit from you. Monthly Prime memberships are just another way to grease those wheels, so to speak.
In the meantime, this is particularly bad news for Netflix, which only has one way to monetize customers and turn that revenue into a profit.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.