Blog Post

Netflix has nothing to fear from Amazon’s big VOD library

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

Amazon (s AMZN) announced Thursday that it now has more than 100,000 titles available for rent in its streaming video-on-demand (VOD) library. And make no mistake — that’s a big number! It’s even got some folks saying Netflix (s NFLX) needs to “Watch out!” But the truth is, Amazon’s big library is not really a threat to Netflix’s subscription streaming service.

Let’s run the math

In its press release, Amazon notes that new releases in its Instant Video service are available to rent for as little as $3.99 a piece. Meanwhile, Netflix’s streaming service offers unlimited viewing of any titles in its library for $7.99. So for $8 you can either watch two movies on Amazon’s service or an unlimited number of films or TV shows on Netflix. Which do you think most people will choose?

Bigger isn’t always better

So Amazon has a lot of VOD titles. But how many of them are actually any good? Netflix CEO Reed Hastings has said in the past that when his company considers licensing content, its focus has been on quality rather than quantity. After all, if it were just concerned about replicating the number of movies available in its DVD-by-mail service, Netflix could boost title count more quickly by paying smaller licensing fees for truly long-tail How-to or fitness videos. That’s not to say that Amazon’s focus on quantity of titles comes at the expense of quality — and to be clear, it does have a number of in-demand titles you won’t find on Netflix. But the point is, you can’t judge the value of a content library on title count alone.

Folks love all-you-can-eat

There’s certainly a convenience factor in being able to pick a movie on demand and watch it instantly, especially when it’s a new release. However, there’s power in the subscription package. And online viewers are increasingly turning to services like Netflix and Hulu Plus as opposed to online VOD services like Amazon Instant Videos or Apple’s iTunes (s AAPL).

Don’t believe me? Let’s look at some numbers: In the second quarter, revenues from subscription services grew more than 24 percent, to $808.2 million according to data from the Digital Entertainment Group. Compare that to digital rentals, which were largely flat year-over-year at $455.9 million.

It’s not an either-or situation

Just as Netflix hasn’t killed Redbox, (s CSTR) Amazon Instant Videos won’t kill Netflix. The truth is that there will be users for all three services: Netflix when you want to veg out and watch a movie that you wanted to see but never got around to, Amazon when you’re aching to catch a movie that just came out for rental, and Redbox when you’re already out and make a cheap rental on impulse.

Photos courtesy of Flickr users Dave Dugdale and jeffgunn.

16 Responses to “Netflix has nothing to fear from Amazon’s big VOD library”

  1. Vamshi Sriperumbudur

    I think the apples-to-apples comparison being made here is not so much the content-driven pricing models driven but the customer behavior-driven business building

  2. Dave Dugdale

    Ryan, I am so glad that you liked my calculator Flickr photo so much that you included it on this page.

    I enjoy when people use my photos that I work hard on, but as I noted on Flickr below each photo I let people use my photos on the condition that they provide me credit to my site.

    Please add my link when you can.

  3. Your comparing Apples to Oranges. You say you can watch two Amazon movies for $3.99 a piece and get Netflix for $7.99. Amazon is renting you brand new releases while Netflix is giving you 1yr old content. the public wants new releases. Apples to Apples would be Netflix charges you $7.99 where Amazon gives it to you for free.

    • Ryan Lawler

      Joe – Does the public want new releases? Look at the growth of subscription services like Netflix versus decline in DVD sales and flat growth on the digital rental side and I’m not so sure that’s where future growth will come from. I think most are just fine with a decent-sized library of on-demand content that they pay once a month for.

    • Daniel M

      @Joe: 1yr old content, at best! Yet as someone has already said, the $8/mo Netlfix charge is nonetheless quite comforting for those who favor a huge library of not-so-new titles. It’s different for both Netlfix and Amazon: they cater to different tastes…

  4. I’ve been a Netflix DVD and instant customer for a while. And I have been migrating to paid shows and movies on Amazon VoD because I get the content I want there. The truth is Netflix instant and Amazon Prime Videos offer crappy content. I believe iTunes offer a good collection as well – will wait for the next Apple TV release. But right now I Roku device works best for me due to the many content source options.

  5. Guest Commentor

    I think that this article misses the rational behind Instant Video. It was never meant to be a standalone product or to kill Netflix. There is a reason that Instant Video is bundled “free” with the Amazon Prime service. Amazon hopes that the bundle will entice more consumers fork up an annual fee of $79 to get Amazon Prime service. Once those consumers get hooked on “free” (since it’s already a sunk cost and therefore SEEMS free) 2-day shipping, they will start ordering a whole lot more of their purchases from Amazon (the thought process being “why should I drive all the way to Costco to buy a dozen tubes of toothpaste when Amazon will ship it to for “free” in 48 hours, and as long as I’m at it, I’ll buy a pair of flip flops, a book or two and a desk lamp.”). Amazon’s smart idea is to realize that $79 in a single upfront payment (as opposed to the $7.99 a month you pay Netflix this month…but maybe you drop your subscription next month…), AND the revenue from your increased Amazon purchases. If you have Amazon Prime, you know what I mean. I’ve paid a bit more to order a bottle of shampoo from Amazon because the shipping is a sunk cost and I’m saving the drive to the grocery store!

    • Ryan Lawler

      We’ve covered this aspect of the Amazon Prime video service in the past:

      But just to clarify — the 100,000 titles we’re discussing here are not those that are packed with Amazon’s Prime subscription service. There are only about 9,000 titles available through that service. This article is speaking specifically about the movies or TV shows that customers have to pay for individually.

      • willfprice

        I don’t understand why you would compare Amazon’s a la carte video service to Netflix when Amazon also offers an all you can eat video service that is directly comparable. It seems illogical not to include that in the discussion.

  6. This article seems not to understand what Amazon provides. Amazon Prime provides basically everything in Netflix now including some unique titles. Netflix also has unique titles but they’re pretty much the same now except that Amazon Prime is basically free to a ton of people since they already have Prime. So that’s a Netflix killer.

    Amazon Instant is simply a different service and an area where Netflix simple does not compete. It’s nice to have one service, Amazon, that does both.

  7. Jason Putorti

    You forgot Amazon Prime streaming, which has a ton of movies and shows included in any Prime subscription. I was actually going to subscribe to Netflix, but since Prime has the shows I want to watch, I no longer have to.

  8. All you can eat when the food stinks isnt that great of a deal…. been an Amazon VOD customer for a few years… not because its cheaper, but because we can actually watch what we want.

  9. Amazon instant video has a much better selection of new movies. The newest selection on Netflix is almost usually a year old. One more thing that is not mentioned is that Amazon also has an all you can watch package called Amazon prime. Once again like Netflix the latest movies are not included in package.

  10. you are missing the lie from amazon that they have 9000 tv shows and movies. they dont they have 2100 movies and 700 to shows.. they misleadingly count each episode in a series as a ‘tv show’

  11. I think this depends on a couple of issues.

    If Netflix is largely relegated to being a ~syndication channel, then I’d agree, VOD isn’t really a threat to it. If, however, it is looking to include near prime-time content (which I think it clearly is), then I’m not so sure. When you factor in Amazon Prime’s streaming content, VOD’s ability to supplement the Prime catalog certainly seems like a threat to Netflix. On top of that, when you look at some of the Prime discounts being pushed out to graduating students, the economics of a Prime + [VOD supplement] could start to look pretty good as a viable alternative to Netflix.

  12. George Lucas Bowen

    Just a different straw in the Video content milkshake. Consumption preference will dictate what people opt for but not a ‘Killer’ it seems. If anything Amazon VOD is more in competition with Redbox or cable VOD services for newer titles, and they seem to have “On sale now” titles for as low as $0.99 for 48 hours which is potentially cheaper than Redbox.