By stepping up pressure on Netflix with a stand-alone video subscription, Amazon is challenging not only a major competitor, but also a big cloud computing client, a sign of how all-encompassing the Seattle tech giant’s business has become.
By stepping up pressure on Netflix with a stand-alone video subscription, Amazon.com is challenging not only a major competitor, but also a big cloud-computing client.
Beyond whether Amazon manages to dethrone Netflix as the king of streaming video, the move is a sign of how all-encompassing the Seattle tech giant’s empire has become. And it shows how the increasingly diversified companies that rule the Internet have developed strong relationships of interdependence in addition to outright rivalry. Sometimes they partner to gain technology advantages; at others, they compete for consumers’ favor.
Last February, Netflix in a blog post proclaimed it had finished moving its data from its own data centers to Amazon Web Services’ cloud, a high-profile victory for Amazon at a time when competition for computing services from the likes of Microsoft and Google was heating up.
Amazon touts Netflix in its client case studies, highlighting how AWS’ gargantuan infrastructure allows Netflix to store and quickly deploy content across the globe.
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But the prize AWS client is in the same business as Amazon Prime Video, the streaming service embedded as a perk into the $99 annual Prime membership.
Now that Amazon has broken out a separate $9 monthly subscription for video, its streaming service is seen by some less as a sideshow to Prime than a direct competitor, and one that could give Netflix a run for its money.
The situation underscores the increasing complexity of Amazon’s hydralike business structure, which is growing fast in very different directions. Prime and AWS are two of the three big “pillars” of the company, according to CEO Jeff Bezos.
Earlier this month, Jeff Wilke, who oversees consumer businesses including Prime, and Andy Jassy, the head of AWS, saw their titles upgraded to CEOs of their respective units, a recognition of the mammoth size of their increasingly distinct empires.
Netflix is not the only rival of Amazon’s consumer-oriented businesses to make extensive use of its cloud-computing services: Nordstrom uses AWS to power its online retail platform. Grocery-delivery service Instacart, which competes with Amazon Fresh and Prime Now, is highlighted by AWS on its website as a client case study as well.
Wall Street seems to think Amazon has now become much more dangerous to Netflix. Shares of Los Gatos, Calif.-based Netflix closed down 2.8 percent Monday at $108.40, while Amazon investors, excited by the emergence of a potential new business opportunity, drove up the stock 1 percent, taking the company’s market value past the $300 billion mark.
(Netflix shares dropped as much as 10.6 percent in after-hours trading after the company had a weaker than expected forecast for near-term subscriber growth.)
In an earnings broadcast Monday, Netflix CEO Reed Hastings downplayed the threat posed by Amazon’s move, arguing that what increasing competition in the Internet TV arena does is make people more able and willing to cut the cord of so-called “linear” or traditional cable TV.
“This is all part of the natural evolution from linear TV to Internet TV,” Hastings said.
Amazon’s new a la carte month-to-month offers for Prime — $9 for video, $11 for a full-Prime membership — seem designed to make the $99-a-year deal more attractive.
But analysts with RBC Capital Markets point out the video component is a dollar cheaper than Netflix’s standard plan and that it has advantages over Netflix, such as 4K Ultra HD content for less than $10 a month and the ability to download video for offline use.
Amazon has managed to produce some must-watch series, such as “Transparent,” a transgender family drama, and “Mozart in the Jungle,” a classical music-inspired comedy. Both series have won rave reviews and critical awards.
The company has been doubling down on acquiring content, striking deals with celebrities such as Woody Allen.
“We view this move by Amazon as a significant negative development for Netflix,” the RBC Capital analysts wrote.
But viewers often pay for several competing streaming services in order to keep up with exclusive content, on which Netflix invests a lot. The company spends more than $5 billion a year producing and acquiring new shows and movies, according to RBC Capital analysts.
Among other Netflix strengths is a big presence overseas, where 36 million of its 81 million subscribers are.