Amazon Responds Decisively to Netflix Move
Amazon.com (NAS: AMZN) has fired a return salvo in the U.K.'s bourgeoning war between the online-retailing giant and Netflix (NAS: NFLX) . Here's a report from the front, along with some Foolish analysis on what the action means for the companies involved and for investors.
Anything you can do, we can do cheaper
First, take note that in the U.K., Amazon is the established content-streaming service and Netflix is the challenger. So following a difficult 2011 here in the States, Netflix recently crossed the pond to debut its promised U.K. streaming service at a per-month fee that immediately ignited a price war with Amazon.
In this race to the bottom, Netflix priced its new service at $7.65 per month for unlimited streaming, prompting Amazon to cut the monthly service fee for its unlimited streaming package, known in the U.K. as "Lovefilm," back to $6.34 per month. Amazon U.K. has just countered this reverse British invasion by signing a content deal with ABC television, which will allow it to bring that network's popular U.S. shows to U.K. viewers.
Strangely enough, ABC still matters
The new content deal is significant. The ABC catalog offers a fair number of current popular shows, like "Modern Family" and "Revenge," and an archive of past hits like "Grey's Anatomy" and "Lost." And it already has a larger U.K. streaming catalog than does Netflix.
For its market size, content available for streaming in the U.K. is typically more expensive than in the U.S. Netflix's chief content officer, Ted Sarandos, conceded this point to FinancialTimes last week, adding, "I don't mind that it's not easy to get content because it creates some barrier to entry for others."
Hubris by any other name
Sarandos also told The Telegraph that Lovefilm was no competition for Netflix because it was "too complicated." And just for good measure, Reed Hastings, Neflix's CEO, threw in that Lovefilm was no competition because "[w]e offer a much better user experience than Lovefilm, with HD video streams available. We are on more platforms, such as Nintendo Wii, and we have a broader content offering."
After this ABC deal, both Hastings and Sarandos may regret being so blithe. Amazon obviously isn't going to take this territorial incursion lying down. The deal with ABC demonstrates the company is perfectly willing and able to spend the money necessary to stay on top of the U.K. streaming market. After the series of poor decisions Netflix made in the U.S. in 2011, rash decisions that seemed to stem from the same kind of hubris we're hearing in the above quotes, it's questionable whether Hastings and company have learned their lesson.
And what about the next round of competition for Netflix, say from Apple (NAS: AAPL) , which is working right now to bring AppleTV to market? Will Netflix be so arrogant then as well, facing down a company with an $80-billion-plus cash war chest? For the sake of Netflix investors, let's hope not.
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At the time this article was published Fool contributorJohn Grgurichuses the word "blithe" whenever and as much as possible, but he owns no shares of any of the companies mentioned in this column. The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Netflix, Amazon.com, and Apple. Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.
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