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If Amazon Takes on Netflix, It Might Win

It looks like Amazon (AMZN) will be challenging Netflix (NFLX) in the streaming movie business, starting by streaming thousands of movies and programs already on its website. The megastore accidentally revealed its streaming movie page early, but hastily took it down. The move has been expected ever since Amazon acquired the UK Netflix competitor Lovefilm to beef up its movie catalog. No word on when the streaming service will launch, but Netflix has several reasons to be threatened.

1. Potentially cheaper prices
The streaming service would offer unlimited movie downloads as part of Amazon Prime, a service that gives customers free two-day shipping and other perks for $79 a year. The Netflix streaming-only plan runs about $100 annually and offers no perks.

The $20 in annual savings may not be enough to get current Netflix users to switch (it also isn't clear how many movies and programs the Amazon service would launch with), but Amazon can easily afford to give a deeper discount when it launches. Last month it offered a $20 Amazon gift certificate for $10 to promote Living Social, its discount-driven acquisition. It sold more than a million certificates -- and got the start-up plenty of press and new customers despite its heavyweight competitor Groupon being in the space much longer than Living Social. A heavily discounted streaming service, say, $50 annually or about $4 monthly, could bring even loyal Netflix customers to Amazon.

2. Better treatment of the DVD audience
Netflix is pushing its DVD customers towards digital streaming. For instance, users can't currently organize their DVDs on their mobile device -- one of a handful of simple user interface changes that show where Netflix's priorities lie. A Netflix corporate blog post on the latest interface change garnered more than 3,000 angry responses.

Amazon is doing some nice hand-holding with its DVD customers, including a free service that allows them to download the digital version of a movie for free as soon as they purchase the physical version. There is no equivalent Netflix can provide, and little perks like this that will make a user more likely to go with Amazon once the streaming service starts.

3. Using streaming to promote other products
Netflix has been fighting with content providers recently. Hollywood studios, for instance, are realizing that they undercharged Netflix for the rights to stream their movies and TV shows. Second, they may have actually be losing money as consumers go to Netflix instead of their respective premium channel or physical media to watch the content.

On the other hand, Amazon has been working with content providers for decades and, relative to Netflix, has their best interests in mind, including cross-promotion between digital and physical media and actual sales of DVDs and Blu-Ray, which Netflix doesn't do.

When it comes to streaming media, Amazon will have to cut some serious deals with content providers, too, but at least it will not be entirely dependent on the movie business -- streaming movies could be a loss leader, getting customers to buy the millions of other products Amazon offers. Netflix CEO Reed Hastings declared that Netflix is now "a streaming video company," which reveals both the vision and the weakness of the company -- and the opportunity for a more diversified company like Amazon to strike.

Photo courtesy of giarose // CC 2.0
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