Netflix Will Benefit From a Better Amazon and HBO

Time Warner's HBO and Amazon Prime Instant Video are seen as Netflix's competitors; in reality, they could be the company's greatest allies.

Jan 9, 2014 at 6:15PM

Morgan Stanley downgraded Netflix (NASDAQ:NFLX) earlier this week, sending shares of the video streaming giant tumbling. The analysts cited rising competition from other players in the Internet-streaming space, most notably (NASDAQ:AMZN), Hulu, and Time Warner's (NYSE:TWX) HBO.

While it's possible that more demand for original programming could drive up Netflix's costs, better competitors should actually be a net benefit to Netflix's business in the long run.

Netflix's competitors are improving
It's true that Netflix's competitors are making strides, both in the quality of their content and in their distribution tactics.

According to analysts at Macquarie, Amazon now has about 20 million Prime members, making it roughly half as popular as Netflix. But it's difficult to tell how many of these Prime members signed up because of the video, since membership includes much more than streaming content, most notably free two-day shipping and Kindle book rentals.

Amazon has followed Netflix into the original programming game, releasing two series, Alpha House and Betas, late last year. Amazon Prime Video isn't accessible on as many streaming boxes as Netflix, but Amazon is widely rumored to be working on its own set-top box, in which Prime Video will undoubtedly play a large role.

Meanwhile, Time Warner's HBO hasn't done much to improve its content -- it continues, as it has for many years, to rely on a steady stream of hit shows, including Game of Thrones and Girls. But Time Warner's premium network is becoming more like Netflix in other ways.

In October, Comcast launched "Internet Plus" in select markets, giving non-cable subscribers the option to purchase a subscription to HBO's streaming service, HBO Go. The deal marks a sea change in Time Warner's thinking about how to sell subscriptions -- prior to that, HBO was only available as an add-on to expensive cable packages.

Other competitors are moving forward in other ways -- both Hulu and Microsoft announced their own original programming, and Redbox Instant has become accessible through more devices. Still, this isn't necessarily a concern for Netflix's shareholders.

Streaming services are complementary goods
While some subscribers may choose Amazon over Netflix, or HBO Go over both, these services may serve more as complementary goods -- not substitutes. There's still some overlap in their catalogs, but as these services offer more original programming, they're becoming more different.

If you want to watch Netflix's House of Cards or Orange Is the New Black, you must have a subscription -- Amazon just won't cut it. Conversely, if you need to binge-view Alpha House or the Amazon-exclusive SpongeBob SquarePants, neither Netflix nor HBO Go will satisfy your needs. Amazon and Netflix have some of the same movies, but HBO's offerings are unique.

Making cord-cutting viable
In actuality, the more these services improve, the better Netflix's business prospects become in the long run. Netflix has a lot of great content, but by itself it doesn't have enough to replace a cable package. But if one bundles it with HBO Go and an Amazon Prime membership, cutting the cable cord begins to look far more attractive. Buying all three services would cost around $30 per month, which isn't cheap, but it's still much less expensive than most cable packages.

If Netflix shareholders are banking on Internet video replacing cable, then they should cheer on Netflix's competitors. Ultimately, Netflix alone cannot create a viable Internet-based content ecosystem.

A better stock than Netflix? Get our top pick for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends and Netflix. The Motley Fool owns shares of, Microsoft, 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers