Netflix Gets Slapped by Amazon
The streaming business is shaping up to be a brutal one. Of all the major technology-oriented businesses to rise up in the past decade, it seems streaming will be one of the hardest ones to win. It's not for lack of demand, nor is it for lack of ability. The streaming game is so hard because of one word: content. It's a complicated to race to see who acquires the most content, the best content, and the cheapest content. Can all three be had? Doubtful. But the winner of the streaming battle will be the one that can carve out the best deal for its service. Right now, the leader is not the obvious choice.
Rumble in the jungle
It seems that every few months now, we hear something about Amazon.com (NAS: AMZN) and its ever-expanding list of services and abilities. From supply side robots to cloud-based hosting, Amazon has emerged as not only the king of retail, but also one of the deities of the Internet world.
While Amazon may have been the first to tackle e-retailing on a major scale, it has since not been the first responder to other Internet-based trends. Cloud hosting, streaming services, online marketplaces -- these have all been long established by companies such as Microsoft, Netflix (NAS: NFLX) , and eBay. But when Jeff Bezos and his team want to enter a market, they do so in a quick and powerful manner.
Amazon's streaming service is less than two years old -- compared with Netflix's nearly decade-old service. Netflix still outstreams Amazon by raw numbers, but Amazon has made incredibly impressive inroads and put Netflix in a shaky seat. To start off, Amazon charges less for its service than Netflix does, and compliments it with its other business lines. An Amazon Prime membership gives you access to 25,000 movies and television shows, in addition to free two-day shipping on anything you buy from the rest of the website. I am a member of Amazon Prime, and I can say it's a worthy service on its own for anyone who regularly purchases from the website, not even taking into account the streaming abilities. For $79 per year, I can buy anything from a DVD to a jungle gym and get it shipped to me, usually within 48 hours, for not a single penny.
Netflix has a library nearly twice as big as Amazon, but that appears to be changing. Epix, a content licensing company that owns popular titles such as The Hunger Games and The Avengers, recently ended its multiyear contract with Netflix that gave it access to major blockbusters that were of particular appeal to subscribers. The contract died of natural causes, but Netflix decided its $200 million-per-year payment to Epix was not worth the coin. It is not certain how much Amazon will pay for the Epix library, owned by Paramount, Lions Gate (NYS: LGF) , and MGM, though analysts estimate it will be between $100 million and $180 million.
With Lions Gate's fantastic run during this year's box office, those titles could persuade Netflix subscribers who have been loyal to the company for the past few years to switch over to the more affordable, more varied Amazon service.
Good or bad?
On the surface, this looks like Amazon just scooped up some of Netflix's most valuable content, and possibly at a discount. But Netflix management likely is happy to unload the hundreds of millions in expenses. The company's balance sheet has struggled with the rising cost of content, prompting an investor selloff over the past year. The stock once traded above $300 per share and was a Wall Street favorite, only to cascade down to the mid-$50s in today's trading.
Amazon has greater resources to pour into its streaming services, fueled by its highly profitable, horizontally integrated businesses. This could be the beginning of a shift from the industry innovator to the 800-pound gorilla. Keep an eye on Amazon Prime subscription numbers. They may not rise as quickly as Netflix numbers once did (they have since tapered off and occasionally dipped), but I once heard that slow and steady wins the race.
As mentioned multiple times now, Amazon has a lot businesses, and a lot of information needs to be digested before making an investment decision. Check out this premium report outlining the hurdles and opportunities that lie ahead for what some consider to be the new greatest retailer in the world.
The article Netflix Gets Slapped by Amazon originally appeared on Fool.com.Fool contributor Michael Lewis owns none of the stocks mentioned above. You can follow him on Twitter,@MikeyLewy. The Motley Fool owns shares of Netflix and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com and Netflix and creating a bear put ladder position in Netflix. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.
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