Between the Lines

Larry Dignan, Andrew Nusca and Rachel King

Amazon inks NBCUniversal deal; Aims to match Netflix's content library

By Larry Dignan | July 28, 2011, 7:40am PDT

In Netflix’s recent letter to shareholders, the company took an a direct shot at Amazon’s move to bundle streaming into Prime shipping subscriptions. Given recent deals, it appears that Netflix’s comments must be hanging on an Amazon bulletin board somewhere.

Netflix said:

Amazon recently added thousands of films and TV shows, and includes them as a free service to subscribers of its Prime shipping service. We have vastly more streaming content, are available on more streaming devices and are purely focused on subscription video streaming. So far, we haven’t detected an impact on our business from Amazon Prime.

As for Amazon’s response, CFO Tom Szultak said on the company’s second quarter earnings conference call:

In terms of digital content, we certainly have an offering right now with the opportunity with Prime, we certainly have a product of Prime and video that we like. It’s extremely early but we’re learning customers love it and what they’re seeing so far. We like what we’re seeing so far in terms of some of the metrics but again it’s very very early.

If you combine the two statements, Amazon is a flea to Netflix for now, but the e-commerce company plans to become a player. Amazon’s actions speak louder than metric free statements.

Today, Amazon announced a video deal with NBCUniversal to bolster the Prime TV library. On July 20, Amazon announced a similar deal with CBS, parent of ZDNet.

For its part, Netflix inked an international licensing agreement with CBS and AMC on Wednesday. On July 13, Netflix inked a deal with NBC Universal.

The bottom line here is that content costs will be going up for streaming media players. And the No. 1 reason Netflix costs may go up will be Amazon. If there’s a race for content libraries, Amazon and Netflix will continue to one-up each other. Those moves will only increase the value of content libraries.

Next up for Amazon will be to secure distribution deals. For instance, Netflix has the Wii staked out, but Amazon doesn’t. If Amazon can reach everywhere Netflix does chances are good that there will be a revision or two in future shareholder letters.

Netflix betting on subscriber fallout in Q3, everyone over it in Q4

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NetFlix Inc., Amazon.com Inc., Web Site Development, Web Technology, Financial Accounting, Digital Media, Internet, Finance, Consumer Electronics, Personal Technology, Larry Dignan

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic.

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I hope Amazon can provide what they say they can. Seriously, these guys need to get their crap together. I've been with Netflix for years, and recently switched to streaming only. When I first signed up, it was DVDs. Then the streaming came along, and I got excited... Finally, we'll be able to cut the physical medium tether, I thought. The early days of streaming didn't offer much, but it slowly grew to include more recent titles and television shows. Great.

However, I have noticed in recent months that the available titles on Netflix has been shrinking! I checked today and some 25 movies and shows I HAD on my instant queue that were once available are no longer available for instant play. Some of it is baffling, too. For example, Penn & Teller's BS was on there, and it was the only place I could watch the episodes. Well, guess what? It's not anymore. Neither is the movie UP, most of the Star Trek films, even some of the old Attenborough documentaries. You get the point.

The other day, my wife and I wanted to start watching How I Met Your Mother from the beginning, so we started looking around. It's not on Netflix, and it's not on Hulu. In fact, a lot of the stuff you'd WANT to watch isn't available anywhere legally.

This is a big problem, and I assume it has to do with DRM and failure to adopt distribution strategies to the changing landscape that is digital media and internet content. In the meantime, we as consumers have to suffer, while we are promised a golden streaming world filled with everything ever made and rainbows. Well, it just doesn't exist, and frankly I'm tired of paying for crap.

Get your s**t together, content providers. I'm looking at you, Netflix and Hulu. Figure it out so we don't have to pay a mint for the privilege to watch content.
swohler
28th Jul
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RE: Amazon inks NBCUniversal deal; Aims to match Netflix's content library

@swohler
That's likely due to Sony Pictures getting removed from Netflix's library until they can resolve a fee dispute with Liberty Media/Starz (who holds the streaming rights for both Sony and Disney). Basically, Starz sold its streaming rights for the Sony Pictures library to Netflix instead of starting up its own streaming platform. Starz's contract had a subscriber cap, and once Netflix went over that cap, then the agreement was void. Starz is purportedly asking for $300+ million a year, while Netflix has said they're willing to offer up $200 million (they had been paying less than $50 million a year for the Sony streaming rights).

Frankly, consumers were never "promised" anything. Netflix grew because it's cheap, its app is supported by nearly every major set-top platform (gaming consoles make up more than 50% of Netflix viewership), and there are minimal barriers to adoption. In the grand scheme of things, $8/month is not going to buy a lot, and Netflix has been getting by on offering up older movies and less in-demand TV shows. They made a fortune because their last streaming rights deals were negotiated when their streaming subscriptions were a statistical blip.

Now, those earlier agreements have started expiring, and the renegotiated fees with the studios have resulted in upwards of tenfold increases in fees. Netflix's content costs are growing much faster than their subscriptions.

Yet, Netflix is trying to obtain rights to more recent movies, and they've begun producing original programs. Just this week, they secured exclusive streaming rights to Dreamworks Animation titles. Shortened release windows, original productions, and exclusivity all cost money -- a lot of money. That's why I think it will soon be way too cost prohibitive for streaming providers to try and carry everything from every major studio.

With their recently announced pricing changes, they're holding the pricing line on their $8/month streaming-only plan by implementing a huge price hike on those consumers that also use the DVD mailers. This is only the beginning.

The direction that these streaming services are going is similar to how the dust settled on the premium cable channels -- with all of the major premium channels producing their own original programs, and staking out exclusivity with specific studios (i.e., HBO with Warner, Showtime with Paramount, Starz with Sony and Disney).

I think the future will be a fragmented collection of different streaming providers offering up different libraries of content. As evidenced by Netflix paying extra for exclusivity to Dreamworks Animation titles, the temptation is too strong for these providers to strengthen their own streaming library (and kneecap the competition) by shelling out more for exclusive rights. Anyone who wants access to everything right away will need to subscribe to multiple providers. Sure, there will be free ad-supported options out there, but if you want the good stuff sooner than later, you'll need to pay more for the privilege.
Woochifer
28th Jul
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RE: Amazon inks NBCUniversal deal; Aims to match Netflix's content library

This is the real play for the amazon tablet...and books, and music, etc. This is the razor blade and the tablet is the razor. If your not clued in the money is in the razor blades, and not the razor.
jhuddle
28th Jul
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RE: Amazon inks NBCUniversal deal; Aims to match Netflix's content library

I haven't minded the selection on Netflix as much as the the unreliability of it. There have been a lot of constant adds and subtracts, with no seeming rhyme or reason. There's no way to plan or detect how long the content will stick around. Of course, with such a low price and so much content it isn't a big deal. And Hulu was way too complicated with that. But it would be nice to have some way too look up if my favorite shows are coming or going, it makes a difference in what I watch and what I buy on amazon VOD.
solomonrex
28th Jul
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RE: Amazon inks NBCUniversal deal; Aims to match Netflix's content library

@solomonrex
That's the Achilles heel of these streaming services. The instant that a fee dispute props up or a contract simply expires, thousands of titles can get removed in the blink of an eye. I also see increasing instances where competitors try to outbid one another, and try to buy exclusive access to a particular studio's library. Netflix already fired the first shot this week when they negotiated exclusive streaming rights to Dreamworks Animation titles.

For anyone looking at Netflix or Amazon streaming as a substitute for a physical movie library needs to be aware that there's no guarantee to any sort of content access at any given time. This is exactly why Netflix has starting producing their own original programs. Same strategy as HBO, Showtime, and Starz, since they all saw a long time ago that older movies and TV shows that have already come out in theaters, broadcast TV, and/or home video are not valuable properties and don't generate huge subscriber numbers.

Nowadays, HBO's biggest audience is with its original programs, which are far more lucrative to the network because it not only retains the largest number of subscribers, but the rights can be resold to other venues and HBO retains full ownership. That's where Netflix is headed, and I see a scenario where their service will cost as much or more than HBO, and the majority of their viewership comes from shows and movies that they produce themselves.
Woochifer
28th Jul
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If Amazon is just aiming to match Netflix's content library

... then their service is going to be worst than garbage.

Netflix's content library is tiny and mostly of content already on regular cable TV. Not something to be proud of of aiming for.

If Amazon is just looking at matching Netflix, then their service is going to suck.
wackoae
28th Jul
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RE: Amazon inks NBCUniversal deal; Aims to match Netflix's content library

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jamestaylor32112
9th Sep
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