CORRECT: 2nd UPDATE: Amazon Adds Streaming-Video Service For Prime Members
February 22 2011 - 2:48PM
Dow Jones News
Amazon.com Inc. (AMZN) has launched an unlimited streaming-video
service, bolstering the online retailing giant's position in the
fast-moving online-video business and putting it in more direct
competition with Netflix Inc. (NFLX).
Amazon, in an anticipated move, said it would make 5,000 movies
and TV shows available for unlimited online streaming to U.S.
members of its existing Amazon Prime offering, which costs $79 per
year and includes free two-day shipping and reduced one-day
shipping rates on items purchased on its website.
The Seattle, Wash.-based company already sells and rents movies
online on an a la carte basis through digital downloads and
streaming. Its new subscription service allows access to mostly
older movies and shows from a variety of studios.
The offering comes as media companies try to adjust to consumers
increasingly wanting to watch video online and puts Amazon as a
direct competitor to Netflix, which recently reported its
subscriber count exceeded 20 million in a sign of consumer demand
for more online video. Amazon, by contrast, is believed to have
about five million Prime users in the U.S, according to Piper
Jaffray analyst Gene Munster.
"This is just a starting point for us," said Cameron Janes,
director of Amazon's instant video service. "We expect to grow the
category over time."
The move comes as Amazon continues to invest heavily in
infrastructure and technology to expand its business, investments
that are squeezing the retailer's bottom line and have disappointed
investors. It remained unclear how aggressively the retailer would
move to expand its streaming-video library.
"Investors will likely be concerned that this is just the
beginning in terms of content costs," said Macquarie Capital
analyst Ben Schachter.
Janes declined to comment on Amazon's prospects for competing
with Netflix, saying the company is focused on providing its
customers with a quality online video experience. The price of
Amazon Prime undercuts the price Netflix's streaming service by
about $17 per year, even before factoring in the shipping values
included. Netflix, however, has a head start in the business, with
stronger content offerings and a brand more closely associated with
video entertainment.
Shares of Amazon recently slid 2.8% to $181.24. Netflix shares
fell 6.0% to $221.25.
Other tech companies like Apple Inc. (AAPL) and Google Inc.
(GOOG) have shown an appetite for investing in online video
services, as the rise of digital media promises to transform the
way filmmakers do business.
Netflix offers its streaming video service for $7.99 per month,
providing access to some content just months after its DVD-release
through deals with premium movie networks Starz Entertainment and
Epix LLC.
Starz, which is owned by Liberty Media Corp. (LCAPA, LINTA,
LSTZA), provides access to films from major studios owned by Walt
Disney Co. (DIS) and Sony Corp. (SNE). Epix also offers timely
content from its owners--Viacom Inc.'s Paramount Pictures, Lions
Gate Entertainment Inc. (LGF) and Metro-Goldwyn-Meyer Inc.
Netflix's success also demonstrates the appeal of older library
content from studios that makes up the bulk of its streaming
service. Its success has raised concern in the industry that such
low-cost movie services are weighing down the value of content at a
time when online piracy is also damaging the business.
Some analysts believe that online video services will encourage
consumers to go without a traditional pay-TV subscription, which
provides a key revenue stream for major entertainment
conglomerates.
Janes said the majority of the major studio content offered in
Amazon's new streaming service is library content that is five to
seven years old. Movies like "Syriana" and "March of the Penguins"
are available from Time Warner Inc.'s (TWX) Warner Bros., while
films like "Charlie's Angels" and "Stripes" are available from Sony
Entertainment. It also has relationships with independent studios,
like Music Box Films, which provides access to "The Girl With The
Dragon Tattoo" film trilogy.
Amazon's a la carte service offers access to 90,000 film and TV
shows, including more current fare.
Munster argued in a note that Netflix's aggressive push to
partner with dozens of device makers--a push that has enabled users
to easily watch streaming content on their TVs--has given the Los
Gatos, Calif.-based company a significant lead in
Internet-delivered entertainment. These devices include TVs, game
consoles like Microsoft Corp.'s (MSFT) Xbox, Blu-ray units and
streaming players like TiVo Inc.'s (TIVO) digital video recorders.
Netflix content can also be streamed to mobile devices like Apple
Inc.'s (AAPL) iPad and iPhone.
He forecast that there will be about 94 million Netflix-enabled,
TV-connected devices in the market by the end of 2011, compared
with about 21 million Amazon-enabled, TV-connected devices.
Amazon has also delved into publishing e-books through its
Digital Text system, which allows writers to upload and sell
manuscripts without professional editing that can be read on its
Kindle e-reader.
Last month, Amazon reported its fourth-quarter earnings rose
8.3%, better than expected, as revenue jumped 36%, although the
growth fell short of Wall Street's estimates.
-By Nat Worden, Dow Jones Newswires; 212-416-2472;
nat.worden@dowjones.com
-By Scott Morrison, Dow Jones Newswires; 415-765-6118;
scott.morrison@dowjones.com
--John Kell contributed to this article.
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