Is Netflix Ready for Another Challenger?

A familiar foe is at Netflix's (Nasdaq: NFLX  ) gate, and it's bringing some friends.

Reuters is reporting that Amazon.com (Nasdaq: AMZN  ) is in talks with Viacom (NYSE: VIA  ) on a streaming deal that may be announced as early as this week. Sources are telling Reuters that this is one of the final steps in Amazon's grander plan to launch a stand-alone subscription service.

After several weeks of bear-pounding gains, Netflix is in the crosshairs again.

Earlier this week it was Coinstar's (Nasdaq: CSTR  ) Redbox teaming up with Verizon (NYSE: VZ  ) to introduce a streaming video service. However, that offering won't hit the market until the latter half of the year. Amazon has a shorter path to launching a premium unlimited video service.

Amazon already has an arsenal of 15,000 video titles that it makes available to Amazon Prime members at no additional cost. Many of those deals would require broader licensing contracts to be a part of the rumored stand-alone service, which would probably be priced a lot cheaper than Netflix's streaming plan at $7.99 a month.

However, Amazon already has an installed base in Web-tethered televisions, tablets, and smartphones. By giving its millions of Kindle Fire buyers a free month of Amazon Prime, it has given them a taste of its digital vault. Why can't it flip the switch, repackaging its streaming smorgasbord into a stand-alone service for $4 or $5 a month?

Bang a gong, Viacom
Viacom could be a meaty deal. When folks think of Viacom they probably think of SpongeBob on Nickelodeon or Jersey Shore on MTV, but Viacom also owns Paramount Pictures. A little Cloverfield or Iron Man action wouldn't seem too shabby.

Taking down Netflix won't be easy. For starters, Amazon has settled for low-lying fruit when it comes to content for its Amazon Prime service. It doesn't have much of a choice. If a studio is afraid of giving Netflix licensed content that it will devalue by lumping it into a digital buffet spread for $7.99 a month, how is it going to react to Amazon at half that price or being included as a bonus perk for shoppers paying $79 a year for free two-day shipping through the leading e-tailer?

Amazon's best argument is that agreeing to a short-term cut-rate deal through Amazon will wrestle some of the power away from Netflix, but is that enough to woo studios?

Going it alone
Amazon may have another trick up its sleeve.

I stumbled across I Think My Facebook Friend Is Dead among the 15,000 titles available at no additional cost to Amazon Prime members. The studio behind the 98-minute low-budget movie is none other than Amazon Studios. The cover of the video even has a "Test Movie" stamp, and it remains to be seen if Amazon is testing the movie to see if it should bankroll a more lavish production or if this is a test movie of the viability of Amazon Studios itself.

Amazon has already made some serious headway in publishing with its own subsidiary. Is its secret weapon to taking on Netflix some proprietary content that folks won't be able to stream anywhere else?

Netflix is already investing on polished proprietary content. Lilyhammer -- Netflix's first original series -- began streaming on the site two days ago. At least two even more ambitious projects are on the way.

Original content and exclusive streaming deals are what will set these services apart. If they play their cards right, there doesn't have to be a loser. Limiting the overlapping content makes it that more likely that a true couch potato will subscribe to both services.

Then again, we're still a long way from calling Amazon or Coinstar a serious streaming challenger to Netflix. Amazon may have the infrastructure. Coinstar may have the mailing list. However, as of right now, both companies are 23.5 million subscribers away from Netflix on the premium stand-alone streaming service front.

Now that Netflix has recovered from last summer's stumble, the gap widens with every passing day that Amazon or Coinstar doesn't actually roll out a competing service.

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The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com 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.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On February 08, 2012, at 12:56 PM, H0MBRE wrote:

    Amazon, Coinstar, and Verizon are certainly not a prime pitch for studios. These companies will do nothing more than expand their services, but excel in none.

    Unless they plan on overspending for 3 years, they will hardly produce credibility for studio partnerships or contracts.

    They will be a short-term alternative to Netflix for the underprivileged demographic.

    Viacom...has slightly more movie-related credibility, but other studios would have reservations and hesitate to sign deals with a competitor.

  • Report this Comment On February 08, 2012, at 1:02 PM, t0bes wrote:

    I think there's a typo - Prime is $79/year not month?

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