Amazon has just announced a stand-alone option for its US video streaming service with a monthly subscription of $8.99, just one dollar less than its rival, Netflix. The video service was exclusively offered to Amazon Prime’s members so far, as an extra for the Prime annual subscription of $99.
The obvious conclusion from this move is the direct challenge to Netflix domination on streaming video; but as there is rapid increase of online video content and audiences are turning their backs to traditional television, it also underlies two more important points in my opinion:
1- An assertive positioning of Amazon towards original content.
2- A new and compelling big data battle by two major data powerhouses.
1- More original content, more customers.
From a personal point of view, I have been using both services in the UK for the last two years and so far, Netflix seems to always win my attention over Amazon video indeed. But apart from personal preferences, Netflix has seriously invested in high quality original content and has kept its promise over the years, managing to reach a dominant position in the streaming video market.
However, I have been observing with great interest a range of significant changes on Amazon’s original programme lately. ‘The Man in the High Castle’, ‘Transparent’, ‘Bosch’, The New Yorker’, ‘Mozart in the Jungle’ to name a few. Furthermore, there was ‘Mr.Robot’, also the upcoming Woody Allen series, continuous purchases of independent films, the deal with HBO and Epix and in the UK, a new dialogue with local broadcasters has recently started. Amazon is reported to spend more than $3 billion on video and music for the Prime service and plus, its content can be dowloaded for offline later viewing: one should try really hard not to notice the shift.
Netflix on the other hand is not an easy opponent. That’s what makes this battle so interesting, I believe. In the UK, data shows that Netflix significantly outperforms Amazon: More than 5 million households are Netflix subscribers (end of 2015) compared to 1.6 million households subscribing to Amazon video service (Netflix has more than 75 million users worldwide). An interview with Jay Marine, the European chief of Amazon Prime Video with the Guardian last Sunday, depicts a quite aggressive strategy to win the video streaming market although the company still needs to catch up with its rival.
“Invent the future. There’s nothing better than that. We saw an opportunity to develop a video service that adds value to Prime members. Video is a huge market. It is not winner takes all. There are going to be multiple winners here and you are already seeing that. It’s working.”
The numbers are impressive for Netflix, although net subscription growth had not been -until previously- what the company expected, especially back at the US home. During the last quarter of 2015, Netflix saw its US subscriber additions going down to 1.56 million from 1.9 last year. The company’s forecast for the first quarter of 2016 was at 1.75 million growth, as presented at their shareholders’ letter. This created obstacles to Netflix’s ambitious targets for 60-90 million US subscribers (Amazon Prime reports 54 million US users in 2015, although not all of them use video services), worried investors who projected the domestic growth to their overseas plans and opened an opportunity for Jeff Bezos and Amazon. However, during yesterday’s announcements, its first quarter earnings were better than expected, although its shares dropped after lowering estimations for new international subscriptions. At home, the company’s net subscriptions looked much more promising: The 1.75 million estimation of last quarter became an actual of 2.23 million net subscriptions.
But it will need heavier investment on original content and exciting new programmes as Netflix CEO Reed Hastings had mentioned before. Indeed, Netflix has announced that it will release 600 hours of new original content, including 31 new shows for 2016: a very expensive path to follow while domestic market slows down.
Meanwhile Bezos is viewing Amazon (Prime) Video as a key priority:
“We want brilliant creators like Jill Soloway, Jason Schwartzman and Spike Lee to take risks and push boundaries. Our original series have already earned more than 120 nominations and won nearly 60 awards, including Golden Globe and Emmy awards. Many of these are stories that might never have been told in the traditional linear programming model.” (Jeff Bezos, shareholder annual letter 2016).
2- The big data games.
Netflix is known for its analytics and big data sophistication behind its original programme productions. Its vast data pool works both as a platform for consumer insights and a strategic tool for business development. The company has been often praised for its deep understanding of data analysis and data visualisation gaining a powerful position among those companies who deep dive to their consumers’ habits in order to ameliorate their products and make their own business profitable. Real time access to users’ data and sophistication of tools and techniques enhance predictive analytics and create a new field for consumer insights, much different to the ones deriving from traditional market research.
Amazon on the other hand is no stranger to data science. On the contrary, Amazon is data science: its big data and analytics range of services has been state of the art, for more than a decade. This is not only about a valuable tool for Amazon’s consumer knowledge, but also a strong business stream to advertisers, a business intelligence tool for the streaming data market, a pioneering player in the IoT. Moreover, Amazon shares expertise on big data analytics from a range of different fields within the company: it is not only the streaming video data that could be of use while an aggressive strategy towards Netflix takes place. Amazon has also long experience in using its data pool to mingle both the online and offline world: its plans for anticipatory shipping and the latest developments on its brick-and-mortar bookstore operation leaves no room for doubts.
It is going to be a fierce battle and I reckon that Amazon’s bold move might be more than worrisome for Netflix at this stage. Although it will need some time to catch up with the numbers (Jeff Bezos has not shared details on video subscriptions so far and the whole picture might as well be much different than estimated), Amazon’s new crusade has a significant ally that Netflix cannot ignore: its own burgeoning legacy.