Amazon undercuts Netflix with new Prime video option

Amazon on Monday threw down its most blatant challenge to Netflix by unveiling a new, standalone Prime Video option that undercuts the Los Gatos-based video-streaming giant’s price by $1 a month.

The new Amazon video-streaming choice will cost $8.99 a month just for access to Amazon’s Prime Video library of movies, TV shows and original series such as “Mozart In The Jungle,” “The Man In The High Castle” and the Emmy-winning “Transparent.” In May, Netflix will complete a price increase that will raise its basic monthly service to $9.99 a month. Hulu, the other of the Big Three of video-streaming options, charges $7.99 a month for an ad-supported service, and $11.99 a month to watch its programming without commercials.

Amazon is also offering a new monthly pay-as-you-go option for its Prime service that includes video streaming and free two-day delivery on most purchases for $10.99. Amazon’s new services are in addition to its regular Prime service, which costs a one-time annual fee of $99.

“Before video was simply a free add-on to a shipping plan, this move appears to put video front and center for Amazon,” said Richard Greenfield, of BTIG Research.

While it has made more of a splash with its Prime video service, Amazon has, until now, been seen by many as a second-place player, along with Hulu, to Netflix and its base of almost 75 million subscribers worldwide. However, Amazon has been able to challenge Netflix of late with its original and exclusive programming. Amazon is the only online-subscription service that offers programs such as PBS’ “Downton Abbey” and children’s shows from the Nickelodeon TV network, and subscribers can also watch past seasons of several HBO series that are not available via Netflix.

Michael Pachter, media industry analyst with Wedbush Securities, said Amazon’s new service options reflects the company’s determination to capture more of the video-streaming market from Netflix.

“(I) don’t expect a significant number of current Netflix customers to defect to Amazon Instant Video,” Pachter said. “(But) it is likely that Amazon and Netflix will divide the remaining uncommitted market on a roughly equal basis, severely impacting Netflix’s continued domestic growth.”

It has always been difficult to gauge just how much of the video-streaming market is watching Amazon’s offering because the company has never released data on the number of of Prime subscribers it has. But Amazon is believed to do well enough to spend what Pachter estimates to be $3 billion to $3.5 billion annually on content acquisition, and will increase such costs to put pressure on Netflix to show it can keep up with exclusive programming

“In our view, Amazon’s standalone service will have the practical effect of increasing Netflix’s content costs,” Pachter said. “(And) we expect Netflix’s costs to rise far faster than its revenues.”

Amazon’s new video service options also come as Netflix is set to deliver its first-quarter earning results after Monday’s close of trading. Analysts surveyed by Thomson Reuters estimate Netflix will earn 3 cents a share on $1.97 billion in revenue for the quarter ended in March. Netflix has also forecast earnings of 3 cents a share and $1.81 billion in revenue from its streaming service during the quarter. Wedbush’s Pachter said investors will be able to take away a lot from what Netflix Chief Executive Reed Hastings, and other company officials, say with the regards to Amazon’s announcement.

“The most important thing is how they respond to the Amazon subscription plan,” Pachter said. ” If they’re dismissive, they’re naïve.  If they take it seriously, it reveals a weakness in their model.”

Netflix’s shares gave up more than 3 percent, to fall to $108, while Amazon was up by 0.7 percent at $625 a share Monday.


Photo: Amazon logo (AP/Reed Saxon)


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  • Apho

    Why would anyone subscribe to Amazon Prime Video by itself?

    The entire reason they have any subscribers is due to being bundled with Prime shipping.

    This is clearly a move to get the video service split off from Prime entirely, they’re just trying to do it this way to soften the blow.

    • alrui

      I agree with your theory!

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  • Tom Jefferson

    I don’t think so. We have both and the overlap between the services, for the content we watch, is pretty small.

    One doesn’t replace the other, nice compliment to each other though.