Netflix (Nasdaq: NFLX ) isn't afraid of Amazon.com's (Nasdaq: AMZN ) challenge.
In a Wall Street Journal interview earlier this week, Netflix CEO Reed Hastings addressed Amazon's role as the leading online retailer is shaping up to be Netflix's closest competitor.
He argues that Netflix has three times the content budget in the U.S., and that corresponds with three times more content.
"What our customers tell us is they want Netflix to have more content, not to have two-thirds less at a lower price," he says. "That's not that interesting a proposition for them."
Hastings then goes on to take a shot at the multi-headed nature of Amazon Prime.
"It's really about low-cost shipping, but why is video in there," he asks. "It's kind of a confusing mess."
Yes, Amazon Prime is a bit of a confusing mess. For most customers, paying $79 a year for free two-day shipping of Amazon-stocked goods is a great deal. If they own Kindles, they may take advantage of the growing number of titles that are available as monthly rentals at no additional cost. Then you get to the growing digital library of video that is being made available to Amazon Prime members.
Every aspect of an Amazon Prime membership is incremental, but it also takes away from the identity of the service.
It's easy to see why Amazon is including the digital book rentals and video streams. Customers that are consuming digital media may not be ordering as many hard goods from Amazon as they used to.
There's nothing wrong with a multi-media ecosystem. Apple (Nasdaq: AAPL ) is living proof that you can be the king of all digital media. However, in trying to be a Swiss Army Knife, Amazon also misses the focus -- or at the very least the perceived focus -- for the actual video service.
Why do you think Netflix entertained splitting its fading DVD business from its growing streaming business? Focus. A loud consumer outcry is the only reason why Qwikster isn't the one handling a customer's DVD and Blu-ray rentals these days.
When Verizon (NYSE: VZ ) and Coinstar (Nasdaq: CSTR ) roll out their digital video service later this year -- if it even happens at this point -- will it really be a hit? Coinstar's still too busy trying to protect its Redbox rental business. Verizon is probably eyeing digital video as one of its many hooks to woo smartphone accounts.
Netflix, on the other hand, eats and sleeps video. It's all about more than a decade of crunching data on consumer video tastes, and then parlaying that knowledge on the country's largest base of premium video subscribers.
Amazon needs to be respected. It's shown that it's willing to sacrifice near-term margins for the sake of market share. However, as long as it's trying to juggle so many initiatives it will never truly be a worthy rival to Netflix.
A new premium report on Netflix details the opportunities and challenges in store for its shareholders. The report includes a full year of updates, so time's ticking. Check it out now.