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Amazon (AMZN) Ends $7.99 Prime Trial

 November 21, 2012 10:41 AM
 


(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.

[Related -Netflix, Inc. (NFLX) Q4 Earnings Preview: What To Watch?]

"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 clients.

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.

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 Channel.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

"We believe this (Epix deal) was strategic in enhancing its streaming content, and driving demand for its new Kindle tablets," the analyst said.

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.

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