Is Amazon's monthly pricing really a challenge to Netflix?

The e-commerce giant revamped pricing for its Prime video streaming to monthly rates, but the new services may be most useful as an addition to smaller cable packages, rather than a replacement.

Richard Shotwell/Invision/AP/File
Roman Coppola, left, and Jason Schwartzman speak onstage via satellite during the "Mozart in the Jungle" panel at the Amazon 2014 Summer TCA in Beverly Hills, Calif., in this July 2014 file photo. Amazon introduced monthly pricing for its Prime Video and Prime members on Sunday in a bid to gain more viewers for its streaming video shows.

Streaming video services have increasingly dominated headlines, giving viewers the ability to binge-watch new shows, scoring deals with actors and directors to produce award-winning original content, and making a slew of movies and TV shows available instantly for viewers.

But as Amazon makes a more aggressive move into streaming video in what many see as a bid to challenge rival Netflix, it's difficult to tell how the services' longstanding challenge to cable TV will play out.

On Sunday, Amazon announced it would begin offering its Prime Video streaming service for a monthly fee of $8.99, putting it in competition with popular plans from Netflix: $7.99 for a basic plan, or $8.99 for the standard. Previously, the e-commerce giant's subscription had only been available as part of the $99 annual membership to its Prime shipping service. Full Prime membership – including free-two-day shipping and access to movies, music and TV – will now cost $10.99 a month.

Despite increasing attention paid to so-called cord-cutting, nearly 100 million American households still have some form of cable subscription, the ratings agency Nielsen found. Several providers are experimenting with "skinny bundles" that offer a smaller number of channels more tailored to a viewer’s interest, in an effort to stave off cable-abandonment.

While streaming services are also often held up as a competitor to cable TV, consumers concerned about the cost of ballooning cable packages may see them in a similar manner to the smaller bundles, as a means to "shave" their cable bill rather than cut it entirely, says Amanda Lotz, a television and media scholar at the University of Michigan.

"Yes, this is happening, is this going to change everything in five years? No, because the thing that's hard to see, is that if you look at the options, cord-cutting does really require you to give up a fair bit, the sports piece just continues to be such a big piece [for viewers]," says Professor Lotz, author of "The Television Will Be Revolutionized."

While the service offers flexibility to users, allowing them to cancel at any time, the new monthly options will cost more than Amazon's previous $99 Prime membership. A user who subscribes to the $8.99 video-only plan will pay $8.88 more over the course of the year, while subscribing to the $10.99 monthly plan will mean paying an additional $32.88 over the year.

Amazon's move to a monthly plan for the services divided analysts, with some singling out Netflix's steadier brand recognition as a video streaming service while others pointed to the wealth of other services offered by Amazon.

"We view this move by Amazon as a significant negative development for Netflix," RBC Capital Markets analyst Mark Mahaney wrote in a research report. "Amazon certainly has the brand name, the customer relationships, and the focus on high-quality consumer experiences to impact the growth in Netflix’s US subscriber base, and perhaps eventually its global subscriber base." 

But some said Amazon's image as a do-everything retailer that has expanded into unusual industries, such as opening physical bookstores and partnering with Comcast to allow customers to order cable online, could make establishing its streaming service more of an uphill battle.

"Amazon's brand is retail. If you ask 100 Prime members why they subscribe, they'll say for free shipping," Michael Pachter, a Wedbush Securities media industry analyst, told The Los Angeles Times. "Ask 100 Netflix subscribers why they are members, they'll say it's for the content. It's going to be hard for Amazon to establish itself as a video competitor.... This won't be automatic."

The services have been engaged in arms race to create original content and license older shows and movies. At the same time, they're competing with Hulu, which is partially supported by ads and backed by content giants Disney-ABC, Fox, and NBC.

Netflix, which now boasts 81 million subscribers, offers original shows such as "House of Cards," "Orange is the New Black," and the documentary "Making a Murderer."

Amazon is newer to the game, but has won awards for shows such as “Mozart in the Jungle" and "Transparent." The company hasn’t released viewership numbers, but membership for Amazon Prime grew 35 percent last year, to 54 million, according to a survey by Consumer Intelligence Research Partners.

A key selling point for both services and Hulu is their ability to make a significant archive of movies and TV shows available compared to the models previously used by broadcast networks, Lotz says.

"Consumers are making this decision on a multitude of factors – on what is in the library and how bad they want to watch it, on the experience they get from the different services, from the price point, and then this question of additional content or material," she says.

But she's skeptical of the idea that Amazon's move is solely an attempt to challenge Netflix, noting that both companies could be impacted by forthcoming challenges to the idea of net neutrality, including a concept known as usage-based billing, where consumers pay only for data used above a set cap.

"We've got to remember that Amazon's in like 19,000 other businesses too, and this may not be really about competing in this space at all," Lotz says.

"There’s definitely room for multiple entities in the marketplace here, especially given the price point. I think this makes Amazon look more similar to Netflix, but it’s still not a zero-sum game, I don't think, in terms of their competition."

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