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Netflix, Inc. (NFLX): Will Amazon.com, Inc. (AMZN) Dominate Video?

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The mighty Amazon.com, Inc. (NASDAQ:AMZN) has infiltrated and disrupted a number of product categories before. The company has built up a significant digital media ecosystem with shrewd acquisitions and has marketed them through its line of Kindle devices. Amazon just might be on its way to dominate Internet video streaming with its array of offerings as it looks to increase sales from digital media content.

Amazon.com, Inc. (NASDAQ:AMZN)

Amazon has a big advantage over other online companies as it has three different services and a massive ecosystem from its existing e-Commerce users as well as a device strategy with millions of tablet users to cross-sell its content.

Amazon’s wide array of Internet video services includes, Amazon Prime, which is the firm’s 2 day shipping service, combined with unlimited video streaming, as well as the lending of eBooks. Amazon also offers Video-on-demand services through Amazon Instant Video, and LOVEFiLM.

One of the major bright spots of Amazon’s Instant Video is the portrayal of newer TV Shows and movies that are relatively recent, compared to other competitors. Using Amazon.com, Inc. (NASDAQ:AMZN)’s IMDB as a marketing medium, the company fills a gaping hole, that other leading competitors like Netflix, Inc. (NASDAQ:NFLX) are unable to do. For example, a majority of Netflix’s content are older than 1 year, which is a great plus for Amazon’s Instant Video service. Streaming shows those are barely one week old, is a great value proposition for Amazon Instant Video, and its rival, Hulu, LLC.

However, usage of Amazon’s video offerings is not as smooth and can be confusing, as it offers quite a combination, and lists them all together. On the other hand, Amazon’s biggest rival in Internet TV, Netflix, Inc. (NASDAQ:NFLX) has a much smoother and easy to navigate user interface. Amazon’s content collection of roughly 38,000 titles is also much lower than Netflix’s content base of more than an estimated 60,000 titles.

In addition, Amazon’s international streaming subsidiary, LOVEFiLM was acquired by the company in early 2011. LOVEFiLM has a strong presence in the European market with more than 2 million members across the UK, Germany, Denmark etc. Lovefilm has DVD offerings as well as the online streaming service and boasts of more than 70,000 titles. Amazon doesn’t disclose the number of subscribers of its Prime and Instant services, but it is widely expected to fall in the 5 million-10 million range.

Amazon’s CFO has acknowledged that Amazon.com, Inc. (NASDAQ:AMZN) is investing heavily for the acquisition of video content through its LOVEFiLM business unit for the European market. Lovefilm is still slightly behind Netflix, Inc. (NASDAQ:NFLX), in terms of viewing and content library, in spite of similar pricing and a much earlier start than Netflix, Inc. (NASDAQ:NFLX).

The on-demand marketplace is much more crowded compared to the monthly subscription-based all-you-can-eat model of streaming. Cable firms are very dominant in the video-on-demand space. Consumers spent more than $1.3 billion for movies and other TV Shows from their pay TV service, according to a report from NPD Group.

Cable companies like Time Warner Inc (NYSE:TWX) and Comcast Corporation (NASDAQ:CMCSA) control roughly 56% of the VOD market, and satellite TV companies like DIRECTV (NASDAQ:DTV) and DISH Network Corp. (NASDAQ:DISH) controlled 27% of the market in 2012. This should not be surprising, because it is a lot more convenient to get a movie rental via the TV relative to switching online or ordering from a store.

However, Amazon’s direct competitors also have pretty significant content offerings in the on-demand space.

Google Inc (NASDAQ:GOOG) has been increasingly ramping up its content offerings through Google Play as well as through YouTube. Apple’s iTunes has a significant footprint in the on-demand movie category as well.

Amazon’s biggest rival in the retail space, Wal-Mart Stores, Inc. (NYSE:WMT) also has a big offering in the form of its Vudu Segment. Wal-Mart (NYSE:WMT) acquired the on-demand video streaming company, VUDU in 2010, and now it boasts of having the highest number of HD Movies in its catalog. 

With more than 200 million customer accounts, Amazon can tap into its existing user base for selling more Prime subscriptions. Also the increased popularity of its hardware offerings will provide additional growth prospects for the company’s video content offerings as well. Amazon’s tablet devices are increasingly becoming more and more popular as the top four best-selling items in the platform are the four Amazon Kindle devices. The company is ramping up its ecosystem further with Kindle Store expansions in countries like Canada, China and Brazil.

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