Is Amazon Prime a Threat to NFLX Stock?
Netflix, Inc. (NASDAQ:NFLX) is so popular that it has almost become a synonym for TV watching these days. Netflix’s stock has also gained tremendous popularity, as it has been the top gainer on the S&P 500 so far into 2015. However, Amazon.com, Inc. (NASDAQ:AMZN) just stepped up its game with its “Streaming Partners Program.” Will Netflix’s success continue? What about the NFLX stock price? Let’s see.
NFLX Stock: Amazon Prime Challenges the Incumbent
In an effort to boost its “Amazon Prime” offerings, Amazon decided to add on-demand programming from channels such as Showtime and Starz. To watch these channels, Amazon Prime members would have to pay an additional $8.99 for each channel per month. Showtime and Starz are part of Amazon’s launch of its Streaming Partners Program, which can connect video providers with millions of Amazon Prime members. (Source: “Amazon Announces the Streaming Partners Program,” Amazon.com, Inc., December 8, 2015.)
Note that at $8.99 per month, the subscription to Showtime is about two dollars cheaper than what you would pay if you were to get the channel through a cable provider. Amazon hopes that by expanding its content lineup in Prime Video, more people will sign up to the company’s $99.00-per-year Prime program, which also offers unlimited free two-day shipping. More Prime members would certainty be great because Prime members tend to spend more money on Amazon’s e-commerce platform than non-Prime members.
So, Amazon’s move could boost business on its online shopping site. But what about the on-demand video streaming business currently dominated by Netflix? Well, on that front, Netflix has little to worry about.
Netflix’s appeal is easy to understand: a great price for great content that’s ideal for binge watching. With the standard plan costing $9.99 per month and the premium plan at $11.99, the value is hard to beat. This July, the company earned a career-high 34 Emmy nominations, led by House of Cards and Orange Is the New Black.
Note that Netflix does not offer add-ons. You get everything from its content library, even with the standard plan. (The premium plan just offers a version that’s better in quality.) It doesn’t seem likely that Amazon’s optional $8.99 add-on channels would have a meaningful impact on Netflix’s viewership.
Netflix is not standing still, either. The company’s original content has been growing in terms of both quantity and quality. Narcos, one of Netflix’s recent additions to its original content, has become a huge hit all over the world. The company’s first feature film Beasts of No Nation released this October has also been well received, with a 91% rating on Rotten Tomatoes. Netflix is shelling out big money on content, but the neat thing is, the more they spend, the happier the investors seem to get.
The company is also working on a new algorithm to save on its bandwidth. Netflix currently represents 36.5% of U.S. Internet traffic. According to my colleague Palwasha, the new algorithm, which serves the best quality of content based on each user’s Internet speed, could lead to 20% bandwidth savings. The cheaper bandwidth bill could help improve the company’s bottom line without affecting user experience.
The Bottom Line on NFLX Stock
In a word: leader.
Netflix is still the frontrunner in the on-demand video streaming industry. It reached more than 69 million subscribers by the third quarter of this year. Plus, the company’s investments in original content continue to improve its value proposition.
Will Amazon’s Streaming Partners Program work? It could help with Amazon’s e-commerce business, but for video streaming, Netflix will still be the first choice. This should be reassuring for NFLX stock investors.