Netflix (NASDAQ: NFLX) and Amazon (NASDAQ: AMZN) are making big bets on the type of content they offer, as more consumers choose video streaming services over traditional pay cable. Amazon signed a multi-year deal with Viacom (NASDAQ: VIAB) this week, in an effort to beef up its video library ahead of competitors. Meanwhile, both Netflix and Amazon are also heavily investing in original content. Let's take a deeper look at whether more content, or original content, is better for subscriber growth.
Pricey content deals
The reluctance of Netflix to renew its agreement with Viacom gives Amazon a leg up in the digital content wars. However, Netflix's decision is also understandable, given the disturbingly high cost of programming these days. For example, Amazon is reportedly coughing up more than $200 million for its new licensing agreement with Viacom, according to Reuters. That would make this Amazon's priciest content deal to date.
The Viacom deal gives Amazon exclusive rights to hundreds of popular shows, including children's titles like Dora the Explorer and Blue's Clues. The world's largest online retailer is sparing no expense these days when it comes to outbidding competitors in the streaming video industry. In February, Amazon extended its content agreement with CBS. Under the updated terms, CBS promised Amazon exclusive rights to the popular TV series Downton Abbey, as well as other notable shows.
While Amazon continues to grow its streaming video library, Netflix is falling behind. Last year, Netflix said goodbye to its Starz titles after negotiations between the two companies hit a wall. More recently, Netflix lost thousands of movies and shows when its agreements expired last month with MGM, Universal, and Warner Bros. This is where original content comes to save the day.
Remarkably, Netflix is still generating impressive numbers, despite losing content to competitors. That's because the company's big bet on original content is starting to pay off. In fact, Netflix added more than 2 million new subscribers in the quarter when it premiered its first original series, House of Cards. That's particularly impressive considering Netflix purchased two seasons of this original programming at half the cost of what Amazon recently paid Viacom for non-original content.
Thanks to the success of House of Cards, Netflix is now planning to double its original content lineup in the year ahead. Netflix even locked down a contract with DreamWorks earlier this year, for a Netflix original kids series based on DreamWork's animated movie, Turbo, which hits theaters in July.
At this point, Netflix has fewer titles than Amazon, whose digital library has grown to include more than 140,000 videos. However, looking to the future, I suspect compelling original content will be the key differentiator for Netflix.
What the future holds
While Netflix's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. 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 The Motley Fool has 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. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.