It's time to digest more bad news for Netflix, Inc. (NASDAQ:NFLX) investors. The heavily-anticipated Amazon-Viacom deal has come much to the joy of Amazon prime customers.
Through the Viacom deal, Amazon prime customers could instantly stream TV shows from MTV, Comedy Central, Nickelodeon, TV Land, Spike, VH1, BET, CMT and Logo. This deal will bring the total number of Prime Instant Videos to more than 15,000.
Amazon Prime members can enjoy this selection on over 300 different devices, including Kindle Fire. Prime members will have access to thousands of shows including The Hills, Jersey Shore, Chappelle's Show and The Sarah Silverman Program.
The latest development may hurt Netflix, which is trying hard to repair its brand name following a 60 percent price increase followed by the announcement and withdrawal of quickster service.
Meanwhile, the timing of the Amazon-Viacom deal is significant as it came just days after a similar deal between Coinstar unit Redbox and Verizon. Though the companies have not divulged the details about the content, the service will bundle Verizon's streaming and Redbox DVDs and would be available in the second half of 2012.
In the coming days, other entertainment majors are expected to strike deals with Amazon, which is reportedly planning to separate video streaming service from Amazon Prime. Amazon Prime is an annual membership program for $79 a year that offers customers unlimited Free Two-Day shipping on millions of items and offer unlimited instant streaming of thousands of movies and TV shows.
Apart from Viacom, Amazon has signed content deals with CBS, Fox, PBS, NBC Universal, Sony, Warner Bros and Disney-ABC Television. UBS analyst John Janedis expects the deal would contribute about $45 million to $50 million in affiliate revenue for Viacom in the second quarter of 2012.
"We continue to believe that Discovery and Scripps Networks, as well as Time Warner will ultimately sign deals with Amazon over the next couple of quarters," Janedis wrote in a note to clients.
But, all is not end for Netflix whose fourth-quarter numbers came in above Street expectations despite profit declining from last year. The company added 600 thousand unique domestic members, ending the quarter with 24.4 million subscribers. This is a marked improvement from the third quarter when it lost about 810 thousand subscribers.
For the first quarter, Netflix expects its domestic streaming subscriptions for the first quarter to increase to a range of 22.8 million - 23.6 million, while it expects DVD subscriptions to continue to slide down between 9.4 million to 10 million.
Meanwhile, Netflix has begun to develop its own content and aired its first series Lilyhammer on Feb.6. The move makes sense as it doesn't need to entirely depend on subscription deals to attract customers.
Also, Netflix has the early mover advantage with a strong catalog of content and over 20 million subscriber base compared to 4 million plus customers for Verizon FiOS TV. So, Amazon deal may not be too much troublesome for Netflix as Prime subscribers would be accessing only the older content that Netflix already has in its kitty.
Netflix should worry about Redbox-Verizon deal as they would be offering new content and its failure to renew content deal with Starz compounds the problem.
Our Take:
Competitors gaining strength is not a healthy sign for any company and Netflix is no exception. If it needs to stay in business, it should produce more original content and needs to hold on its deals with content providers so that it would not be short of appealing content. Also, it should offer its services at a competitive price.