Amazon’s Video Service Not Free, Not Netflix Killer
Amazon, $AMZN, told media outlets Friday that it has no plans to offer an ad-supported, on-demand entertainment service in the coming months, contrary to a Thursday Wall Street Journal report. It does, however, intend to unveil details of its streaming video business Wednesday April 2.
“We have a video advertising business that currently offers programs like First Episode Free and ads associated with movie and game trailers, and we’re often experimenting with new things, but we have no plans to offer a free streaming media service,” said Amazon spokesperson Sally Fouts in an email to StockTwits.com.
The conflicting articles forced Netflix investors to quickly switch positions. Some cashtaggers on StockTwits.com said they had established short positions or taken protection on longs after the WSJ report. They spent the morning reversing those actions after Amazon reportedly said that, though it is always experimenting, it does not plan to offer a free, streaming service.
$NFLX covering majority of my short calls and puts this morning on the open. looking for reversal bounce. long common at this level
— StarFireInvestments (@StarFireInvestments) Mar. 28 at 09:23 AM
Netflix fell 2% from yesterday’s close, but recouped those losses after Amazon refuted the story. Netflix had a near 1% gain by 11 a.m. Amazon’s stock rose more than 2% Friday morning.
— Bidness Etc (@BidnessEtc) Mar. 28 at 10:23 AM
The fear for Netflix investors is that a free on demand, streaming television service will steal much of the company’s $95.88-a-year subscription business. A competing subscription service, like the free video streaming Amazon currently offers its “tens of millions” of Prime members, is also a threat to Netflix’s business—but a much less frightening one. Amazon has offered its more robust video streaming service since February 22, 2011. Over that period, Netflix shares have risen nearly 71%.
The reason some investors aren’t too worried about a competing subscription service destroying Netflix is that content is costly. Investors have blamed Amazon’s Prime price hike, from $79 to $99, on the capital needed to create and acquire content. Amazon has denied this, saying on its last earnings call that the primary reason for the Prime increase is shipping costs. However, the company did launch four all-new original programs for its Prime Instant Video service shortly after the price hike.
Netflix has many of its content agreements in place. And while more video services demanding content could drive costs up, Amazon is not likely to be in a position to undercut Netflix’s subscription prices, say some StockTwits investors. After all, Amazon’s current Prime service is more expensive than Netflix—though it comes with free two-day shipping.
— Michael Batnick (@TheIrrelevantInvestor) Mar. 28 at 09:58 AM
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