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Why You're Wrong to Think the Deal Is a Netflix, Inc Killer

Source: Wikimedia Commons.  (NASDAQ: AMZN  ) has fired the next shot in the war for your living room. In the digital age, consumers are slowly cutting the cord on traditional cable subscriptions and moving toward streaming services and devices. That's resulted in a constant tug-of-war between major streaming providers to obtain content. The most recent deal involves Amazon teaming up with Time Warner's (NYSE: TWX  ) HBO, through its Prime streaming service.

Amazon and HBO struck an agreement in which HBO will allow some of its series to be available on the Amazon Prime service. This is getting a lot of attention through the financial media, since it represents the first time Time Warner has licensed its programming to an online streaming service.

In addition, many are seeing this as a clear blow to Netflix (NASDAQ: NFLX  ) , since HBO is not available on Netflix at this time. Netflix shares sunk on the day of the announcement. But here's why I think this deal is not a Netflix killer and is much ado about nothing.

Amazon to mostly provide old content
A key caveat to this deal is that Amazon Prime customers will only have access to older shows, such as The Sopranos or The Wire, which have long stopped airing new episodes. It stands to reason that consumers who wanted to watch those shows have already done so. Current shows, which are airing new episodes, such as Veep or Game of Thrones, will not be available on Amazon Prime until three years after the original airing.

Netflix already offers certain shows that aired on premium channels, such as Showtime's Dexter. It doesn't seem like such programming makes or breaks Netflix's subscriber numbers. Actually, the deal seems to benefit Time Warner the most. That's because it probably realized that older shows are stale, and this is a convenient way to further monetize old programming. Moreover, it's crucial to remember that you're not getting access to new programming on Amazon Prime.

For consumers who are actually interested in watching older HBO shows, Netflix has an available option. For example, consumers who want to watch The Sopranos or the first season of Game of Thrones could rent them from Netflix's DVD service.

Where Amazon really struck a blow
Amazon's share price fell on the day of the announcement, which implies that investors don't see this as a ground-breaking deal, and certainly not something that will sink Netflix. It seems that Netflix is frequently used as a complement to streaming TV devices like Amazon Fire TV and not necessarily a substitution. Amazon's Fire TV device comes with a free 30-day trial of Netflix.

However, one area in which Amazon does gain an advantage is by obtaining rights to display HBO GO. Amazon's deal with HBO looks like more of a blow to other streaming device makers such as the Apple TV, Google Chromecast, and Roku.

The bottom line is that the biggest winner of the deal appears to be Time Warner. It has secured a way to further monetize older programming, and potentially increase subscribers if Amazon Prime members take to its programming. Amazon looks to be a winner as well, in the sense that it will more effectively compete with other streaming devices.

Netflix may seem like a loser from this deal, but that's not likely to be the case. Netflix has a well-established customer base. Those subscribers probably won't be lured away just by being able to watch HBO shows that are no longer airing new episodes.

The bigger battle appears to be in new programming, in which Netflix holds an ace up its sleeve in the form of its hit show House of Cards. Netflix doesn't appear to be a direct competitor with Amazon, but rather a complementary service. As a result, don't expect a mass subscriber exodus from Netflix any time soon.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 28, 2014, at 1:02 AM, Fo45 wrote:

    The Amazon / HBO deal will slow Netflix growth the only source of revenue for Netflix already shocked by skyrocketing price of content and new delivery cost. Furthermore, nothing is left for Netflix to attract new subs no value or original content factor. The deal has a serious impact on Netflix stock price already.

  • Report this Comment On April 28, 2014, at 4:07 AM, sj95135 wrote:

    Well, This is totally accurate. Only HBO made money and as a subscriber i don't go for older shows which are watched by me multiple times. if they stream HBO latest shows it will be a good deal otherwise just name sake but not worth even penny. Netflix has much better value than amazon 300M deal with HBO. Netflix always brought good content and hope they do going forward. Examples: Dexter, while collar, house of cards... Going forward others make content for netflix(just like you tube) because of there huge 40+millions of customers.

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Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

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