Please ensure Javascript is enabled for purposes of website accessibility, Inc. and Netflix, Inc.: Sit Back, Fasten Your Seat Belt, and Stream

By James Sullivan - Jan 22, 2016 at 8:11AM

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Streaming services are partnering with airlines. What does it mean for customers and shareholders?

Virgin America in-flight entertainment system. Image source. Virgin America. (AMZN -1.75%) and Netflix (NFLX -1.83%) have partnered with JetBlue (JBLU -4.97%) and Virgin America (VA), respectively, to offer streaming video services to airline passengers in flight. These mutually beneficial partnerships make the flying experience more enjoyable and benefit shareholders and passengers alike. Let's take a closer look at the details and how all the players stand to benefit.

Air transportation is fundamentally about getting people from point A to point B as safely, quickly, and inexpensively as possible. Major carriers are incredibly safe -- flying is the safest way to travel -- and travelers often have a number of choices when flying to a particular city. The way airlines distinguish themselves, then, is with things such as more legroom, free checked bags, meal options, and in-flight entertainment. 

In-flight entertainment used to be a single movie playing throughout the cabin. It has evolved to include satellite television and/or a curated selection of shows and movies viewed on a seat-back screen. Virgin America and JetBlue have chosen to outsource their entertainment responsibilities to companies that excel in the field. They don't have to worry about figuring out which movies to offer -- Netflix or Amazon has that covered.

For Virgin America, having Netflix on board should improve the in-flight experience for passengers, which gives them a better overall impression of Virgin. It also might encourage travelers, when deciding between two similar options on their LAX-to-JFK flight, to fly Virgin America so they can finish up Season 3 of House of Cards.

The same reasoning applies to JetBlue and any of Amazon's award-winning original shows.

JetBlue in-flight entertainment. Image source: JetBlue.

For Netflix, the benefits of this partnership are twofold. Being able to use the service on Virgin America will encourage fliers to subscribe to the service. Less than $10 a month for all of the content on Netflix is a small price to pay when renting a single in-flight film can be $5 or $6 on its own.

The bigger benefit to Netflix will probably come from in-flight customer acquisition. Someone who's 45 minutes into a six-hour flight has an incentive to check out the entertainment options. When given the option to sign up for a free 30-day subscription to Netflix, the decision to do so is easy. The 30-day window would cover most return flights, and so, at worst, a customer received free entertainment for two flights with a simple sign-up.

The best-case scenario for Netflix is that the customer gets hooked. It's easy to rationalize spending less than $10 a month if it means not missing out on future seasons of a show you've come to enjoy. That's especially true if you're a frequent flier of Virgin America, as your future airborne entertainment needs are now taken care of.

Image source: Netflix.
Amazon benefits in the same ways Netflix does, but its strategy is a bit different. Netflix's membership fees are the revenue that drive the business. The company wants to acquire subscribers because it needs the $100 to $120 a year to grow its business and make profits. Amazon, meanwhile, is happy to take the $99 yearly fee for Prime membership, but collecting the fee is not its driving factor.

On JetBlue flights, customers will have the option to rent, a la carte, titles from the Amazon video store. If they choose to join Prime instead, they'll gain access to tens of thousands of shows and movies and over a million songs. On top of that, they'll benefit from free two-day shipping, cloud storage, and Kindle book rentals. Acquiring Prime customers is important for Amazon, because members spend an average of $1,500 a year on the site, 140% more than the $625 non-Prime customers spend.

Preferences endure
I've developed a preference for JetBlue because of the extra legroom and live satellite television. It's the first airline I look at when traveling, I have a branded credit card, and I take the majority of my flights on the carrier. But an airline offering Netflix or Amazon Prime in-flight might have secured my loyalty a decade ago.

As a Netflix and Amazon Prime user, and a shareholder of both companies, I'm happy to see them acquiring subscribers in creative ways. I hope to see more partnerships like these in the future. The next 10 to 20 years look bright for two of my favorite companies and best-performing stocks. 

James Sullivan owns shares of and Netflix. The Motley Fool owns shares of and recommends and Netflix. The Motley Fool recommends Virgin America. 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.

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Stocks Mentioned

Netflix, Inc. Stock Quote
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$241.19 (-1.83%) $-4.50, Inc. Stock Quote, Inc.
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JetBlue Airways Corporation
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Virgin America Inc.

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