Tuesday, February 22, 2011, 9:58 AM ET|Posted by Will RichmondAmazon is announcing this morning that it has added streaming access to 5,000 movies and TV shows to the package of benefits its "Prime" members get, for no extra charge as part of their $79/year subscription. Amazon is offering a one month free trial to Prime to let new users test it out. The move had been widely rumored and of course the first company that comes to mind as being in the cross-hairs of Prime's streaming is Netflix. Those competitive concerns are legitimate, but for now, Prime isn't close to being a Netflix-killer.
The big Achilles heel of Prime is content selection. Though 5,000 titles sounds like a lot, it won't take long for experienced Netflix users tempted by a switch to Prime to recognize that most of these titles are already available on Netflix streaming as well. I did a quick comparison of 20 randomly-selected titles on Prime and found that with the exception of a few BBC Shakespeare titles and certain episodes of the PBS series "American Experience," everything on Prime is already available on Netflix streaming. In fact, for now Prime relies heavily on British programming and PBS. Though both provide quality productions, they are far from mainstream popularity in the U.S.
What was missing from Prime that IS available on Netflix streaming will be much more noticeable to Netflix users: all of the Starz and Epix movies, the ABC and NBC TV series, and countless others. Beyond streaming, Netflix is even stronger on content selection, given its 120K+ DVD selection that is available within a day's delivery to most Americans. Even as Netflix has strongly re-positioned itself to be a streaming company, I continue to believe that the value of DVDs' far broader selection is substantial. It will be a very long time until streaming selection comes close to that of DVD. Given how hard it would be for any new competitor to match Netflix's DVD competency, rather than abandoning DVD's value in its messaging, Netflix should be reinforcing it.
That becomes more evident in the new dynamic Amazon has created with Prime streaming. Though the lowest level of Netflix subscription, which includes 1 DVD out at a time, runs $10/mo (which is about $40 more per year than Prime membership), the value of all that additional Netflix content is huge. Beyond selection, there's the fact that Netflix allows users to watch all they want. Because Amazon doesn't include DVD rental in Prime, to recreate the same experience on Amazon, a user would have to rent on a one-off basis from Amazon VOD, which, at $3.99/movie, would quickly eat up the annual differential. And of course users hate to feel nickel-and-dimed each and every time they sit down to watch something (part of the reason the online rental/download model has been stunted to date).
At a larger level though, Amazon's new move mixes apples with oranges, creating a confusing brand message that I think actually dilutes Amazon's video opportunity. The core Prime value proposition of unlimited, free 2-day shipping on Amazon purchases has no discernible connection to accessing streaming content (that I can see anyway). Sometimes an "everything-but-the-kitchen-sink" approach works well, but in this case Amazon has forgone an opportunity to build a strong video-centric branding approach, that for example, pairing instant streaming with Amazon VOD, might have created.
Meanwhile, Netflix continues to own the best video brand in the industry, which is becoming increasingly synonymous with quality, affordability and selection. A side benefit of Netflix's branding prowess is its preferential treatment by key consumer electronics companies, whether through a forthcoming dedicated button on remote controls, or an exemption from Apple's 30% commission on new App Store subscriptions. Amazon can expect none of those benefits any time soon.
All that said, if Amazon commits itself to go toe-to-toe with Netflix (and others) for content rights, and it continues to offer streaming purely as a value-add to Prime membership, it could become a big thorn in Netflix's side. But that's a big "if." Netflix has bid up the rights to top-drawer content into the hundreds of millions and even billions of dollars. Surely a data-driven company like Amazon will want to first see how free streaming lifts Prime's membership numbers. Absent some very strong evidence of this, I'd wager that Amazon would in fact be quite shy about joining the bidding fray. If that's the case, then Prime streaming will remain an odd add-on to Prime's main free shipping value prop and of little consequence to Netflix's competitive standing.
It's too early to call this one yet, but for now, despite the apparent threat of Amazon's new move, Netflix seems to be on pretty safe ground.
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