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Netflix: Amazon Losing $1B A Year in Streaming War

By - Source: AllThingsD | B 30 comments

Amazon is spending tons of money to stockpile its arsenal against Netflix and Hulu.

AllThingsD reports that Netflix CEO Reed Hastings doesn't consider Amazon a threat – at least, not right now. The online retailer is reportedly losing between $500 million and $1 billion a year as it acquires streaming video content rights for its Prime Instant Videos streaming service.

As it stands now, Amazon offers two forms of video streaming: Instant Videos and Prime Instant Videos. The former allows customers to purchase or rent movies and television episodes, and then stream the content to compatible devices. Consumers can also download their purchases without streaming if the device is registered with Amazon (Unbox on PC).

The latter service – Prime Instant Videos -- is part of Amazon's Prime yearly membership, and offers content that can't be accessed by non-members. It's here where the company is really stockpiling its arsenal against Netflix, signing licenses with EPIX, NBCUniversal, Warner Bros., MGM and more in recent months. The company is even generating its own content, following in its competitors' footsteps.

But let's be honest here: Amazon will never be a threat to Netflix if it continues to limit its streaming service to a limited number of devices, no matter what's in its library. Amazon recently branched out and launched an Instant Video app for the iPad back in August, but Amazon's preferred platform, Android, still doesn't have means of accessing Amazon's content outside the Kindle Fire family.

Hastings told AllThingsD on Friday that he generated Amazon's $1 billion per-year loss based on "the value of the content deals that Amazon won when the two companies competed head to head." He believes Amazon's costs are split between its local streaming service here in the States, and the European version Lovefilm overseas.

Netflix said last month that it was currently on track to spend around $2.1 billion on content over the next twelve months. Netflix charges $7.99 USD per month for its video streaming service, and as of March 2012, the company has over 23 million subscribers. The company also reportedly accounts for 33-percent of the peak period traffic in the United States.

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  • -6 Hide
    otacon72 , November 19, 2012 12:09 PM
    The only way Netflix survives is if ISPs uncap their bandwidth which is never going to happen. All this streaming is all fun and dandy until you get a letter from your ISP saying you exceeded your bandwidth for the month. Several of my friends have already dropped Netflix all together after getting huge data bills. I read somewhere a while ago that L3 was going to start charging Comcast more because of the all the bandwidth Netflix users were sucking up. What is it 40% of all internet bandwidth is being used by Netflix? They should pay more.
  • 5 Hide
    kawininjazx , November 19, 2012 12:09 PM
    Having a Netflix and Hulu account, I don't find anything good to watch on Amazon for Prime TV and Videos. However, I will occasionally rent a movie off Instant Video. The nice thing is, I can rent a movie for a dollar cheaper and it still looks great, even though it's not "HD".
  • 1 Hide
    waxdart , November 19, 2012 12:21 PM
    If your ISP has a cap then of course you'll get hit with a bill. In the UK you can get uncapped accounts so you must be able to get that in the US. The netflix selection is a bit crappy here; but it still has some good bits.
  • 3 Hide
    neiroatopelcc , November 19, 2012 12:24 PM
    otacon72The only way Netflix survives is if ISPs uncap their bandwidth which is never going to happen. All this streaming is all fun and dandy until you get a letter from your ISP saying you exceeded your bandwidth for the month. Several of my friends have already dropped Netflix all together after getting huge data bills. I read somewhere a while ago that L3 was going to start charging Comcast more because of the all the bandwidth Netflix users were sucking up. What is it 40% of all internet bandwidth is being used by Netflix? They should pay more.


    Dunno about the rest of Europe but here in Denmark Netflix is doing great - I'm not aware of any non torrent related traffic being throttled and since several of the country's electricity suppliers these days supply fiber based internet to homes, we're not really in a position where throttling would cause Netflix not to work.
  • 1 Hide
    neiroatopelcc , November 19, 2012 12:25 PM
    waxdartIf your ISP has a cap then of course you'll get hit with a bill. In the UK you can get uncapped accounts so you must be able to get that in the US. The netflix selection is a bit crappy here; but it still has some good bits.

    use a vpn connection to a us system to circumvent that - that's what I do when I want to watch channel4 or use the iplayer from bbc
  • 0 Hide
    upgrade_1977 , November 19, 2012 1:46 PM
    I didn't even know Amazon streamed.. I'll stick with Netflix's service. Even though there library is limited I still like how the service works. I much prefer paying a monthly fee and getting the whole library at my disposal versus paying for each purchase.
  • 1 Hide
    rosen380 , November 19, 2012 1:59 PM
    "Netflix said last month that it was currently on track to spend around $2.1 billion on content over the next twelve months. Netflix charges $7.99 USD per month for its video streaming service, and as of March 2012, the company has over 23 million subscribers."

    23M x $7.99 = $2.2B, so it doesn't look like Netflix is rolling in cash from streaming either...
  • 0 Hide
    Anonymous , November 19, 2012 2:30 PM
    The problem with Amazon Prime streaming is that the resolution sucks. Compared to Netflix streaming, which is mostly in HD (720p, which looks great even on my 1080p screen), Amazon is blurry. I try it about twice a year and then forget about it for six months because it is so low-res.
  • 0 Hide
    spookyman , November 19, 2012 2:38 PM
    Amazon's Prime site is kind of hard to navigate around. Netflix has nothing worth watching.
  • 3 Hide
    Ninjamonkeh , November 19, 2012 2:53 PM
    rosen380"Netflix said last month that it was currently on track to spend around $2.1 billion on content over the next twelve months. Netflix charges $7.99 USD per month for its video streaming service, and as of March 2012, the company has over 23 million subscribers."23M x $7.99 = $2.2B, so it doesn't look like Netflix is rolling in cash from streaming either...
    2.1 billion over 12months, your math showed what they are making in a month verses spending in a year
  • 0 Hide
    edogawa , November 19, 2012 2:53 PM
    I like Netflix, it has thousands of great shows and movies, and it's easy to use. I wish Amazon would offer a service like Netflix where everything is free to stream for a monthly flat fee.

    Two things that really bug me about Netflix is a lot of their content isn't HD and they don't have the very latest stuff. On the other hand the thing that bugs me about Prime instant video too is that it does not have a lot of stuff I want to watch without paying, and it's not as easy to navigate.

    They both have some pros and cons, I am confident in Amazon though.
  • 1 Hide
    e_davis677 , November 19, 2012 3:04 PM
    There's no cap in Canada, love Netflix. I even use US DNS servers to get my uncapped American content which is better than the Canadian because of copyright rules.
  • 1 Hide
    rosen380 , November 19, 2012 3:20 PM
    "2.1 billion over 12months, your math showed what they are making in a month verses spending in a year"

    I inadvertently left out the x12 in the text, but the $2.2B reflects it, so all of their servers, electricity and maintenance costs, etc have to be pretty low for it to be profitable.

  • 2 Hide
    millerm84 , November 19, 2012 3:59 PM
    rosen380"2.1 billion over 12months, your math showed what they are making in a month verses spending in a year"I inadvertently left out the x12 in the text, but the $2.2B reflects it, so all of their servers, electricity and maintenance costs, etc have to be pretty low for it to be profitable.


    Yeah I noticed that too, it's a slim margin of $8.3 million a month unless netflix is combining their overall operating cost into the $2.1 billion number; which didn't appear to be the case.
  • 1 Hide
    oldboy2508 , November 19, 2012 4:01 PM
    otacon72, is Amazon getting a free ride? Do they have deals with all the ISPs? If so, please post a citation otherwise I think you're BSing if you're suggesting that Netflix would be the only one taking a hit.
  • 0 Hide
    internetlad , November 19, 2012 4:02 PM
    Prime has very few shows that Netflix doesn't. I was already a Prime member so finding out that I could stream via XBOX was icing on the cake. It's good for old kids shows or watching a series that's been off the air for a couple years, but don't expect too many current shows (or recent seasons of current shows, at least)

    Netflix on the flip side, has Breaking Bad, Walking Dead, et al. But hey, considering you pay 79 bucks for the whole year with prime, get the prime video service, prime book renting (1 per week i believe) VIA kindle and free 2 day shipping on amazon's website, that's bloody hard to beat.
  • 1 Hide
    jaquith , November 19, 2012 4:35 PM
    Where's Amazon Prime? Very Poor Device Support! It's not available on my Phone/Tablets, TV's, etc so what good is it. Heck I can stream my HBO, Cinemax, etc on more devices. Listen I have so many options for streaming now that my head spins-off.

    Amazon Prime device support - http://www.amazon.com/gp/video/ontv/devices

    IF Amazon Prime is on as many diverse devices then when and if that day comes I'll consider it, but for now I have now interest.
  • 0 Hide
    jaquith , November 19, 2012 4:37 PM
    /edit - I'll consider it, but for now I have no interest.

    TH - there's no edit options.
  • 0 Hide
    ddpruitt , November 19, 2012 4:46 PM
    Amazon is building it's arsenal so it can nuke Netflix out of existence.

    Netflix know this and it knows it has forever lost the loyalty of customers like me when it decided to screw us over by doubling the fees on DVDs/BluRays. As a result Netflix is bleeding customers and burning through money so fast they don't know what to do, that's were these crazy claims are coming from.

    Amazon's interface is clunky and they don't have media center or Android apps, but I'm willing to bet that once they have the content ready they'll remedy these so they can kill off Netflix for good.
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