Amazon Taking on Netflix With New Unlimited Streaming Initiative

5:04 PM PST 02/22/2011 by Paul Bond

Netflix, which charges $7.99 a month for a similar service, saw its stock drop after the announcement that Amazon Prime customers will be able to stream movies and TV shows for no extra charge.

Netflix on Tuesday struck a deal to make dozens of CBS shows available for on-demand streaming, but investors seemed more interested in an announcement earlier in the day from Amazon.com, which has suddenly become a wealthy and powerful competitor.

The giant online retailer said that its Amazon Prime customers, who pay $79 a year to get deep discounts on shipping, will now also be able to stream, for no extra charge, movies and TV shows on their Macs, PCs and numerous devices for putting the content on television screens.

The initiative pits Amazon head-to-head with Netflix, which charges $7.99 a month for similarly unlimited streaming. The Amazon offering works out to $6.58 a month, and the shipping discounts remain the same. The discounts alone were enough to convince an estimated 4 million people to sign on to Amazon Prime, while Netflix has 20 million subscribers to its DVD and streaming business.

On Day 1 of Amazon's new service, which was Tuesday, it had 1,600 movie titles available and 4,000 TV episodes, compared with Netflix's 20,000 TV episodes and movie titles.

In an online letter announcing the new Amazon Prime benefit, Amazon CEO Jeff Bezos listed such movies as Amadeus, Chariots of Fire and March of the Penguins alongside such TV shows as Doctor Who, The Dick Van Dyke Show and Fawlty Towers. He also touted a one-month free trial.

If the titles seem a little dated, that's intentional on the part of the rightsholders, studio executives told The Hollywood Reporter. As Amazon dips its toe into this new water, studios are excited to have a new bidder but aren't inclined to license their most popular and current content just yet.

Shares of Amazon fell 3% on Tuesday, roughly in line with the NASDAQ Stock Market on which it trades, but Netflix shares dropped 6%, perhaps on the news that a rich new competitor is basically giving away its wares for free.

Amazon has been in the business of digitally delivering movies and TV shows to consumers on an a la carte basis since 2006, but this marks its first foray into the subscription model. Five years ago, Amazon called its movie-download service Unbox, then changed it two years ago to Amazon Video on Demand when it added streaming movies and TV shows. On Tuesday, it changed the name again, this time to Amazon Instant Video.

Asked whether the all-you-can-eat video service would be untethered from the Amazon Prime delivery discount product any time soon, Cameron Janes, the director of Amazon Instant Video, demurred.

"I'm not going to speculate on what we'll do in the future," he said.

Cameron did, though, acknowledge that Amazon intends on beefing up its offerings in short order through more licensing deals with content owners.

"We're definitely looking to expand and grow our selection," he said.

Netflix didn't respond to requests for comments about Amazon's new service. It said in a statement that its deal with CBS is a two-year, nonexclusive arrangement for full seasons of such classic shows as Cheers, Frasier and Family Ties as well as episodes of Medium, Flashpoint, Star Trek, The Twilight Zone, The Andy Griffith Show and others.

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