How Amazon became a serious competitor for Netflix

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 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 se-lection 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 f-rom 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.

 

"We view this move by Amazon as a significant negative development for Netflix." RBC's Mark Mahaney comments on Amazon's new video service.

— Lucas Shaw (@Lucas_Shaw) April 18, 2016

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. 

If you're just tuning in to the rivalry, here's a brief rundown of what you missed. 

Episode 1: The awakening

On Feb. 22, 2011, Amazon overhauled its sleepy on-demand video se-lection into an instant video service.

The se-lection was limited to 5,000 titles and walled behind Prime. Amazon claimed it had no immediate plans to spin it out into a standalone offering. But the lines were drawn: Amazon had its eye on Netflix.

 

 

IMAGE: SCREENGRAB, MASHABLE

Episode 2: The hunger games

In late 2012, Amazon showed it meant business by signing a multi-year streaming deal with Epix, an entertainment channel that previously had an exclusivity deal with Netflix. 

Amazon scored access to The Hunger Games and The Avengers. Meanwhile, Netflix's stock tumbled by double-digit percentages.

Episode 3: The original content binge

Amazon, a company that now generates sales of $100 billion a year for little to no profit, has never been afraid to invest heavily in projects. 

In 2014, it invested more than $1 billion in instant video. Soon enough, it signed deals to stream HBO shows and scored high-profile original shows f-rom the likes of Woody Allen to compete with Netflix's growing roster of original shows.

 

 

IMAGE: VINCE BUCCI/INVISION FOR THE TELEVISION ACADEMY/AP IMAGES

Episode 4: Walking the red carpet

In 2015, Amazon won its first Emmy for the original show Transparent. The series creator Jill Soloway specifically thanked Amazon and its CEO Jeff Bezos on stage. 

If that wasn't enough, another Amazon show, Mozart in the Jungle, won a Golden Globe at the beginning of this year. 

It was official: Amazon, the company that started by selling books, had become a big player in Hollywood and a thorn in Netflix's side.

Series finale: Going head-to-head

Stay tuned...