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Amazon contemplates competing with Netflix

Netflix was once one of the highest-flying internet media companies around.

That all changed in 2012 when its CEO, Reed Hastings, decided that the days of requesting DVDs by mail were numbered.

The future of his business was streaming. To push consumers into the future, Hastings had to break ‘DVDs by mail’ and ‘streaming’ into two separate services, each requiring a different subscription.

That move, which also entailed an effective doubling in the price for Netflix customers who became accustomed to receiving both services in a single subscription for a nominal monthly fee, proved to be premature and disastrous. And it only got worse. Surprisingly and woefully unprepared for the customer backlash, Hastings issued a weak apology and went on to make one of the worst branding flubs in the year – a brand fragmentation that was later corrected in an embarrassing retreat.

It’s easy to criticise Netflix, and much of that criticism is deserved. Put simply, the company and its leader were too focused on the future and not focused enough on Netflix customers.

Just how harmful will Netflix’s mistakes be long-term? Perhaps not as harmful as it might have seemed at the time. Last night Netflix announced its Q4 earnings report, and after seeing a loss of 800,000 US subscribers in the third quarter, has bounced back to add 610,000 new ones. 

But a vulnerable-looking Netflix may be emboldening would-be competitors. One of those potential competitors? None other than Amazon.

According to the New York Post, the e-commerce giant, which already has a foothold in the streaming space thanks to its popular Amazon Prime service, is looking at launching a standalone streaming service that would go head-to-head with Netflix:

Word that Bezos may be looking to add muscle to its video service comes nearly one year after Amazon launched Instant Video last February. In July, Amazon paid CBS around $ 100 million for 2,000 hours of TV shows. It then followed up with deals for Fox content such as “Arrested Development,” and with Disney and NBCUniversal.

The company has had little to say in recent months, however, though one source said that Amazon was “refreshing its checkbook.”

If Amazon is able to get studios and content producers on board with a standalone streaming service, it could spell trouble for Netflix. Amazon may have started out as a humble online bookseller, but it has become one of the most powerful purveyors of digital content. From ebooks and movies to music and apps, Amazon is a major player.

If it chooses to compete head-on with Netflix, it has the financial resources to do so, potentially giving Netflix headaches as it bids for exclusive content. Even more importantly, Amazon can compete on price in a way few other companies can. Just look at the Kindle Fire. Amazon’s ability to sell a tablet for less than $ 200 isn’t primarily due to hardware manufacturing savvy; it’s a reflection of Amazon’s confidence in its ability to maximise revenue per customer using one of the broadest content ecosystems around.

Obviously, Amazon hasn’t announced anything yet, but the rumours about a Netflix competitor serve as a reminder: it’s not just publishers and content creators who need to keep an eye on Amazon. Increasingly, innovative digital distributors like Netflix will likely find themselves defending their interests against the online retail behemoth too.

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