What Amazon's Viacom Coup Means for Netflix

"SpongeBob Squarepants"
"SpongeBob Squarepants"
 

This story first appeared in the June 21 issue of The Hollywood Reporter magazine.

If there were any doubts that Amazon is a serious streaming-media competitor, they likely were erased June 4 when the company struck its largest licensing deal to date, gaining access to thousands of TV episodes from Viacom.

Before then, some might have been dismissive of Amazon's subscription service, which is not even a stand-alone offering but a free bonus for subscribers to Amazon Prime, the online retailer's premium shipping service. Plus, when it comes to streaming TV shows, NPD Group says Amazon has about a 2 percent market share, compared with 10 percent for Hulu and 89 percent for Netflix.

Terms of the Viacom deal weren't disclosed, but analysts believe Amazon will pay hundreds of millions of dollars over several years to boost its library to 40,000 movies and TV episodes. Hulu has 70,000 TV episodes, and Netflix doesn't disclose how many movies or TV shows it offers.

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Amazon's deal was possible because Netflix allowed its agreement with Viacom to expire, which suggests Jeff Bezos' company might have outbid the industry leader for such shows as SpongeBob SquarePants, Dora the Explorer, Jersey Shore and Teen Mom 2. Amazon's $121.63 billion market capitalization and $7.9 billion in cash give it much more firepower for striking content deals than Netflix, a $12.55 billion firm with $1 billion in cash.

Wedbush Securities' Michael Pachter, who predicts Amazon eventually will create a dedicated streaming service, estimates the e-tailer will spend more than $1 billion a year on Amazon Prime content. The company inked a deal with TNT in December and also has rights to stream episodes of the upcoming series Under the Dome four days after they air on CBS.

Despite Amazon's recent efforts, though, Netflix remains tops in terms of number of paying subscribers, with 29.2 million in the U.S. compared with 4 million for Hulu Plus. Amazon won't disclose its subscriber count, but spokesperson Cat Kelty says there's plenty of evidence proving its subscription video service is successful.

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"Over 30 percent of customers who stream shows like Justified and The Good Wife will complete the whole season within two weeks, so we know customers are binge-watching their favorite shows," she says.

Adds NPD analyst Russ Crupnick, "While Hulu Plus and Amazon both still have a long way to go before they come close to catching Netflix, we are beginning to see increasing trial of these services, even among some Netflix users."

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