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SNHU - IT-210 Business Systems Design and Analysis
Written by: Chris Bell - July, 2012

Amazon VS Netflix - Streaming Movies



When a company such as Amazon offers a huge variety of products they're bound to have some strong competitors in each category, and that competitor is Netflix in the DVD rental and streaming business. Amazon created Amazon Prime in order to directly compete with Netflix's DVD by mail and streaming video services. They both offer thousands of titles which include a mix of movies and TV shows. The three questions that come to mind for the average consumer would be: Which service is cheaper? Which service offers more titles? Which service is easier to use? Amazon's business model with the long tail approach could yield far more revenue in the long run compared to Netflix.

From Blockbuster to Netflix


In the 80's and 90's Blockbuster put mom-and-pop video stores out of business with thousands of video store fronts. In 1999 they got a taste of their own medicine when Netflix CEO, Reed Hastings, got upset over about $30 worth of late fees that totaled more than the movie cost itself. DVD by mail was created and American consumers loved it. You could rent multiple movies per month for a monthly fee and you were guaranteed to never incur a late fee. Netflix quickly set up their logistics to be sure each customer received their DVDs in a 24 hour period from time of order. Blockbuster tried to transition with technology but had a very hard time playing catch up as they had already lost many customers to Netflix. Blockbuster soon went bankrupt. Wal-Mart was the only other competitor Netflix had seen in years that also failed.

Pricing Comparison


Amazon Prime is now here and competing just fine with Netflix which might be due to the low monthly fees. Amazon has a yearly $79 fee which also gives you shipping benefits for the rest of the thousands of products they offer. Netflix is having trouble with pricing at this point charging $96 per year for the DVD by mail service and an additional $24 per year if you want the option of Blu-ray DVDs. Now that streaming videos directly to your TV are available, Netflix decided to charge another $96 per year for that service. In order to get the same amount of offerings from Netflix you will be asked to pay $137 more per year than Amazon Prime.

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Content


While Amazon Prime is still in the growing stages Netflix does offer far more titles in HD even though Amazon offers more titles overall. Amazon Prime is near 17,000 (only 2000 HD) and Netflix offers 10,000 (9000 HD) titles. Being able to offer this many titles is where the long tail approach factors in. About 60% Netflix DVD rentals are the less popular titles that Blockbuster couldn't even put in their inventory. This is a very interesting statistic, however it doesn't technically make Netflix any more money no matter what title is rented. The statistic would be much different if customers had to pay for each individual title as they might incur fees of $100 per month if they watched as much as they do with a low monthly fee in place. The long tail approach benefits Amazon in many ways starting with obscure products that most find online rather than store fronts. In this case Amazon can make a lot more money actually selling each obscure item rather than having them included in a monthly fee.

Conclusion


Amazon has proven to be very good with a variety of products and services. History has shown that companies offering only 1-2 services have a lot of trouble transitioning to new technology. Blockbuster had a great business model and failed due to new technology. Netflix had a lot of trouble and almost failed when streaming videos came about. The problem is that Netflix's entire existence was nearly wiped out when this happened because their entire existence is based off of one service. Wal-Mart attempted and failed in the DVD by mail service but it didn't collapse the entire company. This is where Amazon will far outlast Netflix as they have already adapted to new technology in other areas far before Netflix was even created. Currently Netflix offers less than double the amount of titles for more than double the cost of Amazon Prime. Amazon competed directly with Apple offering the Kindle to compete against the iPad. Amazon also competes directly with Wal-Mart offering very similar products online rather than by store front and has yet to fail in any category. They are an online powerhouse that can only be taken down in pieces at a time rather than as a company.


References:


Tim Brugger (July 1, 2012). Netflix Needs More Than Streaming Subscribers. Retrieved from:
http://www.fool.com/investing/general/2012/07/01/netflix-needs-more-than-new-streaming-subscribers.aspx

James Brooks (July, 1 2012). Don't Count Netflix Out Yet. Retrieved from:
http://seekingalpha.com/article/695121-don-t-count-netflix-out-yet?source=yahoo

Catherine Baab-Muguira (June 29, 2012). Amazon Rolls Out Another Retail Killer. Retrieved from:
http://www.fool.com/investing/general/2012/06/29/amazon-rolls-out-another-retail-killer.aspx

Kristie Bertucci (November 2011). Amazon Prime Streaming VS Netflix. Retrieved from:
http://www.gadgetreview.com/2011/11/amazon-prime-streaming-vs-netflix.html