Amazon Takes a Big Swing at Netflix

There's a new digital smorgasbord in town.

Amazon.com (Nasdaq: AMZN  ) is finally rolling out its video-streaming service for Prime members at no additional cost. The leading online retailer is offering more than 5,000 titles of television shows and movies to its "millions" of customers that are already paying $79 a year to receive free two-day shipping and cheap overnight deliveries.

Obviously 5,000 is a fraction of the tens of thousands of streaming titles available through Netflix (Nasdaq: NFLX  ) , but the flick flicker has been building up its digital catalog since it launched in 2007 with a mere 1,000 titles.

Amazon Prime's streaming selection is only a fraction of the 90,000 options that Amazon Instant Video offers for a la carte rentals or purchase, but it's a brilliant move nonetheless. As Prime members take advantage of the new offering to catch the original Girl with the Dragon Tattoo trilogy, or episodes of Farscape and Arthur, those that never bothered to set up their home theaters for Amazon-ian streams will now be more likely to consider the piecemeal rentals for fresher content.

Contrary to what cable providers and premium movie channels may have you believe, Amazon and Coinstar's (Nasdaq: CSTR  ) Redbox have always been the best positioned companies to take on Netflix and its 20 million subscribers.

Since no streaming service will ever be complete, there isn't a potential Netflix killer that lacks physical distribution. Sorry, Hulu, it's true. Coinstar can rent a limited number of new discs through its Redbox kiosks, but has been shockingly slow-footed in digital. Amazon can sell cheap DVDs, shipped for free in two days through Prime.

Netflix is trading lower this morning on the news, but the real losers here may very well be the studios. If they were worried that the value of their content was being diminished by folks paying as little as $10 a month through Netflix for unlimited streams and DVDs, imagine how they'll feel about Amazon essentially giving it away to its most loyal customers. If Amazon can milk more premium downloads -- and it should -- the sting won't be so bad, but the perceived value of streaming content has hit rock bottom, folks.

Amazon still has an uphill battle here. Its streams are available on several devices, but not enough. Web-tethered flat screen and select Blu-ray players can rub elbows with Amazon's streams. Roku, TiVo (Nasdaq: TIVO  ) , and Google's (Nasdaq: GOOG  ) Google TV set-tops are also on board. The problem is that all three of those set-top boxes combined have a smaller ownership base than the smaller of the three video game consoles -- and Netflix streams on Wii, PS3, and Microsoft (Nasdaq: MSFT  ) Xbox systems. Netflix also streams on the leading smartphones and tablets. In short, Amazon has a lot of hands to shake if it's serious about making this more than a niche service.

The knee-jerk cynical reaction is to wonder how badly Amazon will eat into Netflix's momentum. I would argue that Amazon's entry will only further educate the market and encourage the cord cutting that's plaguing the costly cable providers.

Things are about to get interesting here.

Will Amazon's new service kill Netflix? Share your thoughts in the comment box at the bottom of this queue.

Google and Microsoft are Motley Fool Inside Value choices. Google is a Motley Fool Rule Breakers recommendation. Amazon.com and Netflix are Motley Fool Stock Advisor picks. The Fool owns shares of Google, and Microsoft. 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.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

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 February 22, 2011, at 5:37 PM, Lubomyyr wrote:

    I think that even if Amazon doesn't win over Netflix. there will be lots of room for them both to grow.

  • Report this Comment On February 22, 2011, at 7:34 PM, itsassimpleas wrote:

    im thinking if i owned a cable company or was a big time investor in one i would sell sell sell

    its not gonna get any better for the money hungers who have been ripping us off forever.

    go netflix go....

  • Report this Comment On February 22, 2011, at 8:59 PM, JCoeur wrote:

    Why does cable lose? Even without TV service, I have to pay them $55 a month for the high speed internet to stream Netflix or Amazon. There is no other option.

    Or am I simply more ripped off than most?

  • Report this Comment On February 23, 2011, at 1:33 AM, lowmaple wrote:

    You can also stream Netflix through phone lines so you don.t really need cable

  • Report this Comment On February 24, 2011, at 4:35 PM, BioBat wrote:

    Roku box for $199? Not sure what planet JenniferWeb (ie. spammer) is living on but Roku costs $79. Still, it's an additional price for some.

    But I think the article hits the nail on the head. This is just hastening the devaluation of content coming out of Hollywood.

  • Report this Comment On February 25, 2011, at 11:16 PM, cfrdog wrote:

    Streaming is never going to be the source for everything. All that it will take is for cable companies to add streaming to their portofolio of how to watch something. Isn't it pretty much the same as video on demand? I think streaming is only a piece of how people watch and live TV is never going to go away. Streaming is actually a big pain - it drags, its slow at times and the picture isn't very good on the big screen. Hopefully Apple and Google wake up and buy TIVO and get this thing really going. DVR, streaming, live TV and everythign you can dream up in one single box.

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