(By Mani) Amazon.com, Inc. (NASDAQ:AMZN) had discontinued its $7.99
monthly Prime billing option two-weeks into a trial and that could be a negative for
Netflix, Inc. (NASDAQ:NFLX).
Two weeks ago, online retail giant Amazon began offering a $7.99
monthly subscription to Amazon Prime, offering unlimited access to Amazons
streaming video content and discounted shipping. The monthly price matched
Netflix and Hulu Plus.
The test proved "sticker shock" or an $80 upfront
payment is not why consumers are not subscribing to Amazon Prime. As a result,
the company will now focus on improving customer value through even faster
shipping offers and additional digital content, with the latter incrementally
bearish for Netflix.
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"Considering the large amount of resources dedicated to selling
Kindle Fire tablets, we think incremental content may prove more effective than
faster shipping," Oppenheimer analyst Jason Helfstein wrote in a note to
Amazon ran this test to see if the $80 annual payment is the
reason for limited demand. This compared to competitors' offering a $7.99
monthly fee for somewhat similar services.
"As such, we see Amazon refocused on improving the value of its
Prime offering," Helfstein said.
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Now, Amazon would increase its focus on content acquisition.
Days before its Kindle Fire re-launch in September, Amazon signed an expensive
content deal with Epix. On the other hand, Netflix already dumped Starz, lost
Epix exclusivity, and just recently lost content from A&E and the History
"We believe this (Epix deal) was strategic in enhancing its
streaming content, and driving demand for its new Kindle tablets," the analyst
Netflix, the leading player streaming and DVD rental businesses
due to its impressive content library and superior video quality, is facing
budding competitors such as Amazon, Dish Network (NASDAQ:DISH) Blockbuster and
Comcast (NASDAQ: CMCSA).
The real problem for Netflix is the rising content costs and
increasing competition. For instance, Netflix streaming content costs could
increase by an estimated $200 million to $400 million annually, and the rising
content costs would pressure margins.
Netflix could face a stiff test during the holiday period when
it needs to rival a partnership between Verizon Communications Inc.'s (NYSE:VZ)
online venture with Coinstar Inc.'s (NASDAQ:CSTR) Redbox. In addition, Amazon
has been rapidly adding content to its Prime streaming service, too.
Investors should expect increased competition for streaming
content in 2013. While key movie deals are limited in number, with renewals
every 5-7 years, increased competition for TV content is expected in 2013.
Meanwhile, Amazon is gearing up for the holiday season, having
unveiled new versions of tablet computer and e-reader in September, to take on
Apple Inc.'s (NASDAQ:AAPL) iPad and Google Inc.'s (NASDAQ:GOOG) Nexus. It
remains to be seen how its 7-inch Kindle Fire HD priced at $199, and a Kindle
Fire HD 4G LTE at $499 will reflect in its December quarter results.
Amazon also announced that Black Friday deals on everything from
leading electronics to the most anticipated toys will begin running today
through Nov. 24.Amazon offers free shipping on millions of items every day,
year-round, with FREE Super Saver Shipping which is available on eligible
orders $25 and over. Amazon Prime members enjoy free Two-Day Shipping on
millions of items sold by Amazon.com for only $79 a year.