How Amazon became a serious competitor for Netflix
For five years, Amazon has danced around Netflix in the online video ring. Now it's going in for a knockout blow.
Amazon launched a standalone video streaming service late Sunday, offering a growing collection of original and syndicated programming for $8.99.
Amazon's move could not be better timed to troll Netflix. Not only is Netflix scheduled to report its earnings on Monday, but it is also committed to raising prices for millions of its longtime customers to $9.99 next month.
"The timing is certainly not coincidental," said Jan Dawson, an analyst with Jackdaw Research. In May, most Netflix customers will see a $2 monthly increase, so Amazon's new offer is "clearly intended to scoop up some unhappy Netflix customers," he said.
Amazon's new offer is "clearly intended to scoop up some unhappy Netflix customers."
Amazon is just another in a long list of new video streaming offerings trying to take on Netflix; even Fandango is getting into it to some extent.
But Amazon is different for two key reasons: It already has hundreds of millions of active customers and billions of dollars at its disposal to spend on acquiring video content. And, oh yeah, it has already used both of those assets to build up a competitive streaming service.
The key limitation in recent months wasn't the selection so much as the price. It was only available for those willing to make a lump sum $99 payment each year for Amazon Prime, a broader premium subscription service that includes videos, music, books and expedited shipping.
(You can file this one under weird consumer psychology as $8.99 per month works out to be more expensive than $99, but more flexible for flyby subscribers to binge one or two shows and then cancel.)
Now that barrier has been lifted. The initial impression from numerous analysts who cover Netflix: This is a bad plot twist for the company.
"While we don't expect a significant number of current Netflix customers to defect to Amazon Instant Video, it is likely that Amazon and Netflix will divide the remaining uncommitted market on a roughly equal basis, severely impacting Netflix's continued domestic growth," Michael Pachter, an analyst with Wedbush, wrote in a note Monday.
"Amazon has a pretty decent content library and an increasing amount of original and exclusive content too these days, so it's more of a threat that it might have been in the past," Dawson said.
In truth, anyone — and certainly Netflix — should have seen this coming.
Amazon has gradually built up a legitimate rival to the streaming video giant through a series of careful and often pricey business decisions.