Amazon's dueling content act will hurt Netflix

Amazon and Netflix ink content deals with Disney. These dueling efforts are likely to squeeze Netflix over time because Amazon has more ways to monetize a content deal.

Amazon and Netflix landed streaming media deals with Disney, but the latter may take the bigger hit over time.

On Monday, Netflix renewed a deal with Disney to keep streaming past seasons of Grey's Anatomy and Lost. Amazon inked a similar deal, but landed Marvel animated series for the X-Men and Spider Man franchises.

As CNET News' Greg Sandoval noted, these dueling deals are just the way Hollywood studios want it. The more players licensing content the happier movie studios and networks become.

In the long run, however, Netflix won't be so happy. Here's why:

  1. Netflix loses any positive momentum from renewing deals if Amazon matches a content agreement.
  2. As Netflix content deals expire or come up for renewal, Amazon is likely to tag along.
  3. After a few years, Netflix and Amazon's streaming service will look nearly identical.
  4. Amazon can then hurt Netflix's margin with a less expensive service and moves to bundle video service.
  5. Netflix doesn't have the operating leverage to match Amazon's lifetime value of a customer equation.

That last point is critical to Netflix's future. Amazon can sell a Kindle Fire tablet for $199 because it will subsidize it with revenue elsewhere. A Kindle Fire owner may spend more on e-books. That owner may also become an Amazon Prime subscriber for the free video. That owner may just buy a flat-screen TV from Amazon and maybe a treadmill later in the year.

Netflix has nothing to match Amazon's subsidy model. Netflix's only hope will be to develop its own programming like HBO or spend heavily for exclusive content. And those two outcomes don't factor in how much marketing Netflix will need just to win customers over from previous management debacles.

Add it up and Amazon may just have Netflix in a vice.