Netflix earned more in the fourth quarter of 2011 than Wall Street expected, but Amazon is allegedly gearing up to release a competing stand-alone service, at a cheaper price.
Netflix just can’t catch a break. Despite its series of damaging PR blunders, the beleaguered video-streaming and DVD rental company announced its fourth quarter 2011 earnings report (pdf) today, which shows that Netflix managed to beat market expectations, with earnings of $0.73 a share, and revenue of $876 million. Market analysts expected about $0.53 a share, and revenue of around $857 million. The company also managed to increase its US streaming subscriber base by about 220,000, and its international subscribers jumped to 1.86 million.
That’s the good news. The bad news is US DVD subscribers dropped by 2.7 million. And, on top of that, Amazon is reportedly about to expand its streaming business in a way that should have Netflix CEO Reed Hastings shaking in his boots.
Amazon currently offers its Instant Video streaming service for free for Prime customers, who pay $79 a year for the service, which includes other perks, like free two-day shipping. According to a report from the New York Post, however, Amazon is allegedly planning to expand its streaming services, and break it off into a separate business from its retail offerings.
This purported plan is corroborated by Netflix, which believes Amazon plans to undercut its service with cheaper rates.
“We expect Amazon to continue to offer their video service as a free extra with Prime domestically but also to brand their video subscription offering as a standalone service at a price less than ours,” write Netflix in its earnings report to investors.
Amazon launching a stand-alone streaming service isn’t unprecedented. In the UK, German and Scandinavia, Amazon owns and operates Lovefilm, which currently has about 2 million subscribers — roughly the same number Netflix has across all its international markets, but far less than the 21.67 million streaming-only subscribers in the US.
If Amazon does offer video streaming for less, Netflix still has a silver bullet: Content. But even that’s losing its fire power. According to Amazon, its streaming library will reach about 13,000 titles this year (though this number likely counts each episode of a TV series as a single offering, meaning the number is significantly less). As of last year, Netflix was at about 12,000 titles (not including individual TV episodes), though that number is surely lower than where it is now. Plus, it’s about to rollout the first of its original content offerings this year.
Of course, with Netflix’s content partners becoming less willing to share, that difference could quickly dwindle. Or its library could be filled with more and more unwatchable drivel. Or Amazon could offer its service for such a staggeringly low price — like, say, $3 a month — that people will simply go with Amazon simply because it’s cheap (a la the Kindle Fire.)
In the end, it all comes down to quality. Netflix remains the most popular video streaming service for the lone fact that it offers the most amount of desirable content. The only way for any streaming service to thrive is to give people stuff they want to watch. But with more and more companies beginning to offer their own streaming services (like HBO Go), the chance that Netflix can land the major titles it needs to remain a powerhouse diminishes further.
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