Amazon.com(NASDAQ: AMZN) launched another shot across the bow in the streaming wars earlier this month.
Continue Reading Below
The e-commerce giant launched its video streaming service in 200 countries on December 14, matchingNetflix's(NASDAQ: NFLX) global launch at the beginning of the year. Amazon is fast shaping up as Netflix's biggest rival in video streaming, moving past Hulu and other potential competitor YouTube Red.
Image Source: Amazon.
Amazon, which has seized on opportunities in emerging industries unlike any other company in the past generation, is pouring billions into video streaming, which has become its biggest focus after e-commerce and cloud computing. The global launch follows Amazon's recent release of the highly anticipated "The Grand Tour" with Jeremy Clarkson, a show which it reportedly spent $160 million to buy the rights to.
With Amazon Video's international release, internet users around the world now have another streaming option on top of Netflix, but with one important distinction. Amazon's service will be available for a six-month trial at a price of just $2.99/month, which will then increase to $5.99.Netflix, on the other hand, charges the same rate in developing countries as it does in the US, offering a base price of $8/month.Netflix CEO explained the pricing strategy by saying his service was initially targeting elites in regions like the Middle East and India and that it may lower its prices over time.
Amazon's strategy, on the other hand, seems to be consistent with its historical pattern of sacrificing profits for market share. The company is unlikely making a profit on video streaming, and is instead using it to attract customers to its Prime ecosystem, which offers free two-day-shipping, encouraging members to do their online shopping exclusively at Amazon. Video is the main attraction in many of these new countries -- Amazon barely offers the other Prime benefits in the countries.
With its lower price point, Amazon would seem to have the advantage over Netflix in countries like India, where Netflix is charging the double the average price for Pay-TV packages.
There's other evidence that Amazon is narrowing the gap with Netflix as well. Amazon's titles actually scored more nominations than Netflix's for the 2017 Golden Globe Awards, which were announced earlier this month. Both companies received five nominations for TV, with Netflix gaining nods for "Stranger Things" and "The Crown," and Amazon for "Transparent," "Mozart in the Jungle," and "Goliath." However, Amazon garnered six nominations on the film side, five for "Manchester by the Sea," for which it outbid Netflix at this year's Sundance Film Festival. Netflix received only one film nomination, for "Divine."
By all accounts, "The Grand Tour" has been a smash hit as well, more popular than any other Amazon show and with an IMDB rating of 9.2 with more than 20,000 votes.
It's clear that Amazon is increasingly posing a challenge to Netflix, as the two companies have engaged in bidding wars over a number of properties including "The Grand Tour," "Transparent," and several films at Sundance. Like Netflix, Amazon Prime has also proven hugely popular at home, though Amazon does not release information on the number of members it has.
However, there's little evidence that Amazon's incursion has had an effect on Netflix's own subscribership. Netflix is set to add more than 4 million subscribers in the US this year, reaching nearly 50 million total and well on its way to an end goal of 60-90 million domestic subscribers, and the company's shows continue to be the most popular among streaming audiences, claiming the top 11 spots according toBusiness Insider.
And despite Amazon's gains, Netflix remains the pace-setter in the industry. It was the first to go into originals, the first to launch globally, and continues to spend more money than its rivals, with plans for a budget of at least $6 billion for original programming next year. It's also begun optimizing content for local markets, with options like local dubbing and subtitling and programming from the host country, gaining a head start in Amazon in that area. Netflix's status as a pure-play also may give it an advantage over Amazon, as Amazon's brand is tied up with other businesses and its website gives no indication of its streaming catalog.
If anything, the rivalry shaping up between Amazon and Netflix seems to prove Reed Hastings' contention that the streaming market will be massive, with plenty of room for several competitors, continuing to grow every year for the next 20 years. Americans have shown they're willing to shell out for both and Netflix and Amazon Prime, as they have for Prime and rival Costco. If both services continue to offer quality programming, consumers will continue to pay the small monthly fee to enjoy them. Amazon's willingness to undercut Netflix on price overseas may put a dent in its growth rate in some foreign markets, but Netflix's leadership still looks steady.
As technology improves and the viewing audience moves over from traditional Pay-TV, both services should find ample growth in the coming years.
10 stocks we like better than Netflix When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Netflix wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of Nov. 7, 2016
Jeremy Bowman owns shares of Netflix. The Motley Fool owns shares of and recommends Amazon.com, Costco Wholesale, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.