Amazon ( AMZN ) is a leading online retail player selling a variety of products including electronics, apparel, books, DVDs and music. It competes with eBay ( EBAY ), Wal-Mart ( WMT ), Costco ( COST ), Best Buy ( BBY ) and Overstock.com (OSTK) in this market. Amazon recently launched an unlimited video streaming service for Amazon Prime customers that will rival that of Netflix (NFLX).
A few weeks back, we discussed how this decision could further popularize Amazon's Prime service and attract more consumers to its online shopping platform (see our article Video Streaming with a Side of Free 2-Day Shipping ). Here we examine Amazon's potential in the online streaming market and whether it can successfully compete with Netflix. We maintain a $181 price estimate for Amazon stock , in line with the current market price.
Netflix's Content and Licensing Arrangements Hold an Edge Over Amazon
Amazon's online streaming service comes free with Amazon prime membership, which costs around $79 per year, while Netflix's comparative service costs around $96 per year. Although Amazon's streaming service comes out to be cheaper than Netflix's, we believe that Amazon does not pose much of a threat to Netflix in the short-term because it lacks the content and licensing arrangements that Netflix possesses. Amazon will only offer 5,000 movies and TV shows through its latest online streaming service, while Netflix offers more than 20,000 titles in its catalog.
Netflix also has licensing arrangements with Starz and Epix that provide access to recent Disney (DIS), Lionsgate, and Sony films, while Amazon does not have any such arrangement. Moreover, Netflix recently struck a two-year content deal with CBS (CBS), which will further expand its selection of TV shows.
Can Amazon Compete with Netflix in the Long-Term?
Although Amazon lacks Netflix's level of content and licensing arrangements for its online streaming service, it does offer more than 90,000 movies and TV shows that customers can buy or rent through its digital video service called Amazon Instant Video. This service consists of movies that are available as soon as they are released on DVD, and TV shows that are available the day after their first broadcast. However, these new selections come at a higher cost to Amazon as it has to pay higher license fees to content providers for providing the fresh content. Hence, if Amazon wishes to expand its online streaming service to include these selections and compete with Netflix, it will have to incur higher operating expenses, reducing profit margins for the company.
See our full analysis and $181 price estimate for Amazon
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
