Yet Another Bump in the Road for Netflix

Amazon.com  (Nasdaq: AMZN  ) is testing a new pricing strategy for its Prime membership with the intention of crushing Netflix (Nasdaq: NFLX  ) . The online retailer's new model now offers customers a monthly subscription plan of $7.99 per month for unlimited TV and movie streaming, free two-day shipping, and access to Amazon's Kindle Owners' Lending Library. That's likely to be an enticing deal for many people, considering it not only matches the cost of Netflix's service, but also comes with added services like free shipping and Kindle book rentals.

Lights, camera...
If you're wondering if Netflix should be worried, the answer is yes. Two months ago Amazon inked a deal with pay-TV service Epix. Under the terms of the agreement, Amazon gained access to thousands of popular movie and television titles including new releases, such as The Hunger Games and the latest Iron Man flick. In fact, Amazon Prime members now have more than 25,000 movies and TV shows at their fingertips. So where does this leave our beloved Netflix?

For one thing, Netflix is currently the leader when it comes to Internet streaming. As the largest video-subscription service in the world, Netflix now accounts for 33% of web viewing during prime-time hours, according to Bloomberg. That's better than Google's (Nasdaq: GOOG  ) YouTube, which commands 15%, as well as Amazon Prime, Hulu, and Time Warner's (NYSE: TWX  ) HBO Go combined.

On the other hand, Apple's (Nasdaq: AAPL  ) iTunes is another up-and-coming threat to Netflix's dominance in the space. According to Bloomberg, iTunes saw downstream traffic increase to 3.9%, up from 3% the year prior.

All told, Netflix needs to move quickly if it wants to maintain its lead in the market. One way the company is hoping to stay a step ahead is by heavily investing in exclusive programming. For example, Netflix is expanding its original content offerings to include House of Cards, Hemlock Grove, and a second season of its hit show Lilyhammer. However, Netflix isn't alone. As my Foolish colleague Rick Munarriz points out, Amazon is also considering adding original content to its video lineup.

Silver linings
Clearly, online video streaming is hot these days. According to a report by Sandvine, in the past year U.S. households have consumed the equivalent of 81 hours per month of downloaded video. And that figure should continue to grow as viewing content online becomes cheaper and more convenient than the alternative. Going forward, this trend should work to both Netflix's and Amazon's benefit.

With vast opportunities in streaming media bringing new competitors into the mix, Netflix will need to work extra-hard to secure its spot at the top.
 

Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.


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