Will Amazon video streaming service for Prime members impact Netflix?

After almost four weeks of speculation, Amazon rolled out their unlimited video on demand service for Prime members. According to the announcement, Amazon Prime members, who already enjoy free two day shipping for a $79 flat annual fee, will now have unlimited access to 5,000 streaming movies and television shows. The move was initially viewed as a direct attack at video streaming service Netflix, which offers similar services at $8/month for unlimited access.

Consumption of video content is primarily conducted on the web. According to a recent report by Nielsen on video consumption, usage in January in the U.S. is up considerably from the same time last year as time spent viewing video on PC/Mac/laptops from home and work locations increased by 45%. And Netflix users on average spend 11 minutes watching videos, which is more than double the amount of time spent by Hulu subscribers.

When considering these numbers, it is clear to see that video on demand services are an integral component of next generation TV or interactive TV (iTV). This begs the question: how will Amazon’s service impact Netflix? To best answer this question, one may want to look at a few factors:

  • Number of subscribers. According to a recent report on Neflix vs. Amazon via Investor Business Daily, roughly 13% of Amazon’s 130 million active users are Prime members. Netflix has 20 million subscribers for its streaming and DVD-by-mail services in the U.S. and Canada. So Netflix is only slightly ahead of Amazon in regards to users.
  • Availability of Titles. Based on the 20 current bestselling videos on Amazon (see table below), Netflix hosts only 65% of them as video streams while the remainder are available as a only DVD rentals. Unfortunately, these titles are mostly two years old (in some case much older!) which make less attractive in comparison to Netflix which features multiple 2010 and 2011 titles.
  • Device Support. While Amazon is only available on Tivo, Google TV, and Roku, Netflix is available on these devices and more, including favorites like the Boxee Box, Apple TV, multiple blue-ray DVD players and Apple’s iPad and iPhone mobile platforms.

It seems that Amazon Prime subscribers would logically try out the service and a fraction would defect to Netflix once they understand the value of unlimited streaming service and the expanded availability of content by latter provider. While Amazon’s foray into unlimited streaming may appear to be a total bust, in actuality it will benefit Amazon as Netflix fully transitioned to Amazon’s cloud infrastructure in 2010. So Amazon will make money out of this deal even if it is only through growing consumer awareness/demand.

The only potential wrinkle in the future of streaming video is broadband metering. While the battle has just begun in the US, Netflix is already contending with ISP’s charging overage fees for video consumption. Netflix has to convince the FCC in the US that unlimited broadband is important for competitive pricing.