Are Amazon and Comcast Really Threats to Netflix?

Don't look now, but Amazon.com (Nasdaq: AMZN  ) is starting to inch closer to Netflix (Nasdaq: NFLX  ) .

The leading online retailer will now let Amazon Prime customers stream from its growing catalog of videos, which is available at no additional cost through Sony (NYSE: SNE  ) PS3 consoles.

Gee. It's only been nearly three years that Netflix subscribers could do the same thing!

Sarcasm aside, console streaming is a big deal. Netflix's digital service didn't truly take off until it began playing nice with consoles. Going through Blu-ray players, smart TVs, and DVRs is fine, but nothing beats reaching out to a Web-tethered platform found in tens of millions of homes.

It's an important step for Amazon to be taken seriously, especially as it competes against a Netflix that is available on all three console platforms, a top tablet and smartphone download, and so ubiquitous that many Blu-ray remotes even have a shiny red "Netflix" button.

Battering ram buffering
Barclays Capital analyst Anthony DiClemente downgraded shares of Netflix yesterday -- to "Equal Weight" from "Overweight" -- offering up the emerging competitive threats of Amazon and Comcast's (Nasdaq: CMCSA  ) (Nasdaq: CMCSK  ) Streampix, too.

Streampix is an interesting name to bring up. Comcast introduced the service in February, offering existing customers access to select TV shows and movies across a wide range of devices for $4.99 a month.

It's a great price on the surface, but keep in mind that this is only available to current Comcast subscribers that already have a ton of on-demand content available. Comcast video customers are paying an average of $141.24 a month for service that's typically bundled with phone and Internet connectivity. What's an extra $4.99 to them? However, why are we comparing Streampix -- which is essentially now a $146.24-a-month service -- to Netflix at $7.99 a month?

Even if Streampix is eventually offered at a higher price to non-Comcast customers as a stand-alone service, how is it going to broker the content and device deals that Netflix has been lining up for five years?

Bang a gong, Amazon
Amazon's been aggressively trying to make up the difference. The catalog that it makes available to Amazon Prime customers paying $79 a year for free expedited shipping of merchandise is now up to 17,000 titles.

Amazon's library is now reportedly up to half of Netflix's collection. The problem is that it's the wrong half. Folks complaining about Netflix's selection will be in for a shock on Amazon's virtual platform. There is certainly overlap when it comes to shows, but the most popular Prime-eligible stream through Amazon Instant Video as of last night was 1979's Caligula.

We may be dealing with entirely different audiences, too. Netflix has claimed in the past that most of its streaming is going toward previous seasons of television shows. It wears the "rerun TV" shot as a badge of pride. However, just three of the 20 most popular streams on Amazon Instant Videos are television shows -- and two of those happen to be Nickelodeon shows for children.

Incremental isn't detrimental
There's no denying that Amazon's streaming through Sony video game consoles is going to increase its service's usage. Streampix may not be as big a needle mover, but Comcast is certainly better with it than without it.

Why is this a negative for Netflix, necessarily? Are we assuming that the growth is going to come at Netflix's expense instead of simply widening the streaming market?

Netflix has 21.7 million domestic streaming customers and another 1.9 million more accounts overseas. Why can't all three companies have larger audiences for their digital initiatives a year from now?

If it ever comes to an "either-or" battle -- and it won't, at least in the near term -- it's hard to bet against Netflix.

Stream on
Motley Fool co-founder David Gardner has been a fan of Netflix as a disruptor for nearly a decade, but there's a new Rule-Breaking multibagger that's getting him excited these days. Learn more in a free report that you can check out right now.

The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Netflix and Amazon.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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 April 04, 2012, at 2:00 PM, dlchase24 wrote:

    I don't think the threat to Netflix from Amazon is what they do offer, but rather what they can offer.

    When looking through shows I want to watch, I typically find they are available on both services. There are some things Netflix has that Amazon doesn't, but in personal experience it's not a large number of titles.

    The real issue for me, though, is that availability of a movie via streaming can be significantly delayed from the time a DVD is released. So with Netflix, I either need a DVD plan or I have to wait for it come to instant streaming (maybe).

    With Amazon, there is a good chance I can rent that movie right away. Sure there is a cost, but $3 bucks isn't bad when I want to watch something right now or when compared to $8 per month for a DVD plan that barely use.

    That's obviously not Netflix's business, but if the gap between Amazon Prime and Netflix instant streaming content continues to shrink, users may find it a reason to change platforms.

  • Report this Comment On April 05, 2012, at 5:06 AM, funspirit wrote:

    Agreed on Amazon's library being the "wrong half" as you put it, BUT they are actively seeking new content.

    A column frther describing Netflix's competive threats is here-

    http://www.richmakesyourich.com/2012/03/can-netflix-swim-pas...

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