Michael Greeson, Founding Partner, Research
February 22, 2011
Amazon this week officially launched its own on-demand video streaming subscription service, no doubt hoping to tap into the momentum that continues to push Netflix to almost unimaginable heights. (Who would have thunk it? J)
Aside from whether in its current form Amazon’s new streaming service is a “Netflix Killer,” or whether from inception is preordained to be but “Netflix Lite,” the OTT subscription landscape has added a truly significant player that - if it so decides - has the market clout and cntent relationships to build a legitimate Netflix competitor and to help bring high-quality OTT video services to the masses.
I previously argued that moving into this space would be a wise move for Amazon. Among the arguments in favor of this position was that, just as Netflix successfully built its streaming service for “free” among its existing DVD-by-mail subscribers/enthusiasts, Amazon could also build its streaming service for “free” among existing subscribers/enthusiasts, “prime” ones at that (members of Amazon Prime).
At the time we offered that commentary, little data was available whether consumers would bite on an Amazon Prime-based streaming service or, if such a thing happened, whether it would come at the cost of Netflix. That is no longer the case.
Service in Summary
By way of overview, this new service (dubbed “Amazon Instant Streaming”) enables Amazon Prime subscribers with net-connected TVs to access commercial-free streaming of more than 5,000 movies and TV programs at no extra cost; assuming, of course, that their net-connected TV features support the Amazon-on-demand service. Amazon Prime is positioned as a premium membership program that, in theory, is comprised of a variety of benefits. In its pre-streaming form, members paid $79/year to get but one benefit (albeit quite compelling, especially to frequent buyers): free 2-day shipping on merchandise purchased at Amazon.com.
Amazon has basically expanded the Prime benefit package to include this new “free” Netflix-like service. For Prime members, using this kind of service will come naturally (as has proven to be for many Netflix subscribers). For Amazon.com shoppers who did not perceive compelling value in a $79/year 2-day shipping service, perhaps the addition of this new streaming service will put them over the top. Remember, at $79/year, the Amazon streaming service is $17 less expensive than Netflix’s streaming-only service, which costs $7.99/month ($96/year). Add to this the secondary benefit of 2-day shipping and you may have a combination of benefits compelling enough to pull them into a subscription purchase. The value of the streaming service can thus be positioned differently for each of the two segments.
As others have pointed out, Amazon’s streaming content selection is somewhat limited, especially when compared to Netflix’s growing library of newly-released TV shows and movies. So much so that the service in its initial incarnation is far from a “Netflix killer.”
Then again, this is only the first iteration of what should prove a rapidly expanding content arsenal; a cache that will grow as Amazon looks to leverage existing content relationships to obtain favorable streaming rights (it is, after all, the behemoth of online DVD retailing - that should be worth something). If Amazon can then patch together a decent selection of content, it could offer some decent competition to Netflix without necessarily having to duplicate its library.
The Consumer Speaks
Let us assume for the moment that the new Amazon streaming service is relatively equal to Netflix. How would Netflix users likely respond, and what impact might this have on Netflix subscriptions? Put another way, would the availability of an Amazon Prime-based instant streaming service cause Netflix streamers to cancel their Netflix service?
First, some context. According to TDG’s latest research (early February 2011, fielded only a couple weeks ago), nearly nine-in-ten Netflix steamers (88%) shop at Amazon.com but only 18% are also Amazon Prime subscribers. Another 43% of Netflix streamers shop at Amazon.com and have heard of or are familiar with Prime, while 27% shop at Amazon.com but have never heard of Prime.
Among Netflix streamers, then, Amazon seems to have two distinct targets, at least in the early market: Amazon.com shoppers who either (a) already subscribe to Prime, and (b) those that do not. TDG’s latest research addressed both groups, asking similar but targeted questions.
For Netflix streamers that were also Amazon Prime members, we posed the following question:
Imagine that your Amazon Prime membership included at no extra cost a Netflix-like streaming video service. In other words, as part of your $79 Amazon Prime membership, you would receive both free 2-day shipping and access to a streaming video service at no extra cost.
Assuming the service is relatively equal to Netflix video streaming in all ways, what impact would this new Amazon movie streaming service have on your current Netflix subscription?
Responses are summarized in the graphic below.
As noted, among Netflix streamers that subscribe to Amazon Prime, 36% would cancel their Netflix service and go exclusively with the Prime-based service, while 33% would keep their Netflix service and add the Amazon streaming service. In other words, nearly two-thirds of Netflix streamers/Prime subscribers would use the new Prime-based service, half of which would do so exclusively.
We also asked Netflix streamers that use Amazon.com but do not subscribe to Prime the impact such an offering would have on their Netflix subscription. Responses are summarized below.
As illustrated, 48% of Netflix streamers that do not subscribe to Amazon Prime would sign up for the service, two-thirds of which would then cancel their Netflix service, one-third of which would keep their Netflix service but add Amazon Prime. One-fourth (28%) of Netflix streamers/Prime non-subscribers would keep their Netflix service and not sign up for Prime. Only 10% would keep their Netflix service and add Prime-based streaming to the mix. As with existing Prime subscribers, about a third of Prime non-subscribers are uncertain.
A quick translation: all things being equal, Amazon could conceivably attract a significant number of Netflix streamers to their new streaming service and to the Prime membership. Of course, at this point “all things” are hardly equal, as the scales are tipped heavily in favor of Netflix (content, ease of use, etc.). However, Amazon is not Redbox, and the upside potential of this new streaming service will go far beyond this initial “Netflix Lite” offering.
By the way, this data is just a tiny part of TDG’s most recent study Video Behavior in the Age of Quantum Media: 2011. The larger study quantifies and examines a variety of “new video” behaviors, including the use and appeal of over-the-top (OTT) and “TV Everywhere” multiscreen video services. For more information about this new project, please call our client support team at 469.287.8050.
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