Is Amazon About to Repeat Netflix's Big Mistake?

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Amazon PrimeAmazon.com (AMZN) may be gearing up to start charging for its unlimited video streaming service.

If what industry sources are telling the New York Post holds up, the leading online retailer would go from giving away streams of select movie and TV show titles to its millions of Amazon Prime subscribers to selling the unlimited service as a stand-alone offering.

If this all sounds somewhat familiar, just rewind a few months to a summer that Netflix (NFLX) would prefer to forget.

Tollbooths are Painful

Since the inception of its streaming service in 2007, Netflix included access to its growing library of streaming titles for subscribers of its unlimited DVD plans.

Pressured by studios that believed their output was being devalued as a service freebie, Netflix decided to charge for its streaming platform. It began offering streaming as its own disc-less service in both Canada and the United States for $7.99 a month.

Netflix then turned up the intensity this past summer, announcing that it was splitting its plans into two. All customers wanting access to the company's digital vault would have to pay $7.99 a month. It lowered the prices of its disc-based plans by $2 a month to help offset some of the sting.

Well, we know how that played out. Netflix lost a net 800,000 domestic subscribers during the third quarter -- only to make back some of that ground during the fourth quarter. The stock cratered. Subscribers grew resentful.

Why would anyone pay for what they got before at no additional cost? Perhaps video buffs didn't realize all of the money that Netflix was throwing at its streaming service in the form of costly licensing deals. Perhaps they didn't realize that it was the studios -- more than Netflix -- that wanted a price associated with the Web-served video.

Studios want respect

Amazon Prime members pay $79 a year for free two-day shipping and deeply subsidized overnight deliveries on Amazon-warehoused goods. This has been a popular loyalty shopping platform for Amazon; analysts believe that there are 7 million to 8 million Prime members.

However, as Amazon's flagship media items migrate to digital delivery, the incentive to pay up for a free shipping service becomes less compelling. Amazon has helped offset that resistance by giving Amazon Prime members some extra online benefits.

Prime members, for example, can rent one of several select Kindle e-books for free each month. Video streaming on roughly 13,000 titles is another perk, though Amazon has never revealed how many of its customers are taking it up on its offer.

The library available to Prime is woefully inferior to Netflix's at this point, and understandably so. Netflix has been inking deals since 2007, and has a wide enough subscriber base that it can outbid the competition. However, rolling out a stand-alone premium service -- something that even Netflix, during Wednesday night's conference call, conceded will likely happen -- will find Amazon in the hot seat that at least temporarily crushed Netflix's killer brand.

Will the content be that much better? Will Amazon be able to compete against Netflix? The only way that Amazon can do this right would be to continue offering the streams to Prime members at no additional cost, while introducing an even cheaper annual plan for those who just want to stream video.

We'll see how this plays out, but we've already seen how it went for Netflix.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Netflix. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Netflix and Amazon.com.


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HenryJ

Eh, Amazon can also very well offer tiered access to content. Keep Amazon Prime video on demand basic with low content availability. Then introduce an additional tier of paid video on demand monthly access fee to include most popular content not available to Prime free video library. Finally, have a fully paid, all Amazon video on demand with the exception of new releases. As long as Amazon Prime free video library never gets reduced substantially, what happened to Netflix will not happen to Amazon. The key is that Amazon will not be taking anything away that is perceived as "free", but simply providing more content in addition to free to paying customers. Netflix never had this option because they offered far too much free stuff to encourage adoption of video streaming. Amazon is now reaping the fruits of Netflix's subsidized industry adoption.

April 28 2012 at 1:35 PM Report abuse rate up rate down Reply
potmind

When they think they have a monopoly, and they should keep it by gradually lowering prices to keep competitors from moving in, they raise their prices and put themselves outta bidniss! Typical MBAs? Make a big profit hit and damn the torpedoes.

January 29 2012 at 12:58 AM Report abuse rate up rate down Reply
alfredschrader

I got 200 channels for $54.00 a month. 199 of them were duds and everything from the Yiddish channel to the Tokyo channel. Out of all the channels there was only one worth watching and that had one good show about a guy with a motorcycle shop and his two sons building cool bikes. Amazon and Netflix are not roaring success stories, cable and satellite are a dismal failure and skyrocket overpriced. On the regular cable channels you get 18 minutes of programming every half hour and 12 minutes of advertising. The shows are interupted so many times, they are ruined....Al-

January 28 2012 at 10:35 PM Report abuse rate up rate down Reply
johnpesar

I've had Amazon Prime for several years and think it is totally worth the annual $79.00 for the free shipping alone. I also have both Netflix DVD and streaming services, and HULU Plus. When Amazon announced addition of their streaming service I didn't pay much attention and have never used it. I'm not even sure if I can stream through my TIVO boxes. Lately I do find that I' been using Amazon's 24 hour rentals more because Netflix seems to take longer to make many of the more popular DVDs available. I've read that Starz in not renewing their argeement with Netflix which means that a considerable part of their more popular offerings will no longer be available. So it seems like Netflix is becoming less attractive. This whole video delivery service is evolving quite rapidly. Fortunately, other that Amazon, all seem to be based on monthly subscriptions so we can easily switch to what best fits our needs.

January 28 2012 at 2:16 PM Report abuse rate up rate down Reply
1 reply to johnpesar's comment
halhobbs

Me too. I've never found too much to watch on Amazon Prime. You already have to pay for anything new or very good but it's a great service. They're a great company. Netflix went from charging you $8.00 a month for both dvd rentals and streaming to taking away the streaming leaving it at the same cost as before. Then they almost doubled your overall cost if you wanted the streaming and the dvd rentals. It's like a federal tax increase. People spend less money and invest less, thereby dammaging the economy. Netflix is more like our government. Amazon is more like a well run economy. Like we unloaded Netflix, we can no longer keep them as our representatives.Poorly run and blind to the options we have.They obviously have a politician

January 28 2012 at 7:25 PM Report abuse rate up rate down Reply
Oh Great One!

I'm an Amazon Prime member and also a Netflix member. Amazon has always charged for streaming video. The "free" ones are mostly videos you probably wouldn't want to pay for anyhow, so I don't think this is anywhere near comparable to Netflix's move. Also, it's good to remember that Netflix seems to be rebounding from it's mistakes. People expect to pay for streaming movies, so I don't see that this is a big deal. What's nice about Amazon is that they have movies for instant streaming (for a low fee) that you'd have to wait for the disc for from Netflix. So if I don't mind shelling out $2.99, I can watch the movie I want immediately. Amazon is a smart company. I'm not worried.

January 28 2012 at 11:49 AM Report abuse rate up rate down Reply
chaosseed

Just read a book.

January 27 2012 at 4:29 PM Report abuse rate up rate down Reply
2 replies to chaosseed's comment
John A Guthrie

Please read my book: http://www.Edgeofheavenbook.com

January 28 2012 at 2:16 PM Report abuse rate up rate down Reply
halhobbs

Good idea. Buy the Amazon Kindle or Kiindle Fire. You'll read much more than you ever did. A Kindle book costs 1/3 what the actual book would cost and you always have the book on line.

January 28 2012 at 8:52 PM Report abuse rate up rate down Reply
suec8

Lots of FREE content out there: Crackle, Hulu (NOT Hulu plus where they charge), TED, TWIT, and tons more. Invest in a $49 Roku box to hook to your TV or watch on your computer. Granted these are not first run movies, but for general entertainment there is no need to play games with cable and satellite companies, Netflix or Amazon Prime.

January 27 2012 at 3:21 PM Report abuse rate up rate down Reply
1 reply to suec8's comment
Oh Great One!

The Roku box is awesome.

January 28 2012 at 11:50 AM Report abuse rate up rate down Reply
suec8

Lots of FREE content out there: Crackle, Hulu (NOT Hulu plus where they charge), TED, TWIT, and tons more. Invest in a $49 Roku box to hook to your TV or watch on your computer. Granted these are not first run movies, but for general entertainment there is no need to play games with cable and satellite companies, Netflix or Amazon Prime.

January 27 2012 at 3:21 PM Report abuse +1 rate up rate down Reply
Lisa

I don't unerstand why everyone is complaining. I'm sure that they had a disclaimer that read that prices could go up. It's a small price to pay, I think. Nexflix customers are ridiculous. What is $8 to watch all of the movies you want? Go to the movies and see how much it cost you for one! Modern technology cost money and is expensive.

January 27 2012 at 5:40 AM Report abuse -1 rate up rate down Reply
2 replies to Lisa's comment
ExAstrisScientia

Yuor right. Most of these people want more, more, more but, want to pay less, less, less.

January 27 2012 at 1:00 PM Report abuse rate up rate down Reply
1 reply to ExAstrisScientia's comment
n2paints3

as opposed to business's that want more more more and gives less less less?

January 28 2012 at 10:08 AM Report abuse rate up rate down
buffhomie

Lisa, you don't get to watch ALL the movies you want on Netflix's live stream. If they had every movie on there, they wouldn't be in their current situation.

January 27 2012 at 2:35 PM Report abuse +2 rate up rate down Reply
Randy

I received a Kindle Fire for Xmas which included the Prime membership for one month at no charge. I was very, very unhappy with it to say the least. If you have a problem (which I did more than once) you have to get on Amazons web site, dig up a tech support page and ask them to call you. There's no way you can get a phone number to have handy to be able to call them when you need to. You have to go through the same hassle every time. The next thing was, I downloaded, (not just streamed) the entire season one of 'Pan Am', and when I was fginished I received the videos on my kindle Fire with the words 'You own this' right next to each one in my library. I watched the first 6 episodes but then a few days later when I tried to watch the last three I received a message saying I had to payy $2.99 each if I wanted to watch them. So once again, I went through the process of having them call me and was told that the shows that are listed in the prime membership can come and go and even if you get them downloaded, they have the ability to find them on your device, recind the ownership they told you you had before and charge you for any unwatched videos if you still desire to watch them. Very, very nasty business model. On top of that, I odered a few things from them and found that some were free shipping and some were not. So the free shipping with prime does not always apply, and they do not tell you why. Overall, I found absolutely no reason to keep the Prime membership. I found it a misleading, lousy way to treat customers. I thought Netflix was bad for doing what they did to their customers but they look like gods compared to Amazon.

January 26 2012 at 9:43 PM Report abuse +1 rate up rate down Reply
2 replies to Randy's comment
Bryan Phillips

I bought a KFire during the Thanksgiving Holiday and started the 30-day free trial of the Prime membership. Having been a long time customer and supporter of Amazon I thought the free trial would be really great. I do enjoy the free shipping on many items I have purchased, as well as the discounts.

In December I had heard some comments from friends about PanAm on television and I wanted to catch up on the episodes while I had the time off from work. I was able to download and watch the first nine episodes as no cost. As of now, the nine episodes are still on my KFire and are mine and free. But! If I want episodes 10, 11, 12, and to the end of the series, they are priced at $1.99 each. I was a little disappointed in that. If the episodes that I already downloaded to save suddenly disapear from my KFire I will be more than slightly angry. Free or not, they were offered for ownershp for free and I don't think that they should have the right to just delete them from a privately owned machine without warning.

If Amazon splits the streaming video away from Prime and charges yet another fee, I will dump my membership to Prime, not sign up for the streaming video and for the most part will purchase DVD's, Books, and other items elseware. In recent times, several companies put these programs and services out there, sign you up, and then change the rules. I for one am getting tired of that.

January 27 2012 at 12:10 AM Report abuse rate up rate down Reply
Setanta

this thing with rescinding the OWNERSHIP etc ?-
DEMAND either the episodes FOR FREE or refund your money via credit on your acct--
if they don't see it your way speak to higher ups--
then report them to the FTC,BBB,consumers etc and search for blogs on line to also slap up your complaint.
contact your credit card carrier and explain this situation and why you feel you are due either the refund or the video etc etc as they not only should know of this dispute but some will also FIGHT for YOU -
none of this will take you too long either via internet and phone-

I have no bone to pick with amaZon.com BUT this sounds OBNOXIOUS
and maybe amaZon.com had no business going here either

January 27 2012 at 10:43 AM Report abuse rate up rate down Reply