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Amazon confirms the terms of its declaration of war on Netflix

Amazon has finally confirmed what was Hollywood’s worst kept secret, that its Amazon Prime customers will be able to get some online video for free, j

By PETER WHITE

Published: 24 February, 2011

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Amazon has finally confirmed what was Hollywood’s worst kept secret, that its Amazon Prime customers will be able to get some online video for free, just like the DVD rental customers of Netflix can get online video for free. To us this looks like an early experiment, and Amazon is thought to have about 2 million Prime members worldwide, bringing in around $79 a year, so the program has around $158 million in total. This, is a low number compared to the 20 million that are signed up to one service or other at Netflix, each paying at least $7.99 a month, so around $96 a year, making that around a $2 billion wad of cash – it’s hard to compare the two or see how one can become something like the other.

The Netflix deals lets consumers watch a certain number of minutes a month, depending upon their level of investment, but ALL its online content is far greater in depth of selection, around 5,000 for Amazon, out of its total library of 90,000, but something like 12,000 and rising from Netflix online out of a DVD library of over 100,000 titles – the numbers are comparable, but slanted in favor of Netflix. Of course the precise list of video available, how up to date it is, and how stable it is (Netflix has been accused of swapping assets on and off the online list) is perhaps more important. Eventually Netflix is going to make all of its titles available online, but Amazon, which offers both pay per view rental and purchase for these assets, is unlikely to be able to shift too aggressively in that direction, partly due to limited content rights.

However with the purchase of LoveFiLM, and if we’re right the possibility that Amazon will bid for the French and German equivalents, it immediately has a similar free offer to LoveFiLM’s 1.6 million customers, effectively almost doubling its reach over night, and for this its video mix can be determined by the rights which LoveFiLM has, rather than renegotiated rights from the US to Europe.

Amazon Prime was designed to offer two day free shipping regardless of minimum purchases, as well as discounted priority shipping rates. Amazon launched the program in the US back in 2005, in Japan, the UK, and Germany in 2007, and in France as Amazon Premium in 2008. That gives a perfect footprint for its content acquisition strategy. Clearly there is a big calculation that Amazon has made, to work out how much money it will lose on delivery if it delivers every purchase for free, against that $158 million of income. It can certainly go back to the drawing board if it needs to re-calculate that, to cover the cost of paying for content which is delivered for free. However one interesting statistic is that anyone who joins Amazon Prime spends roughly double in the following year, and that some 92% of them reckon they get value out of the service and plan to renew, so there is money to be had there to pay for Amazon content, out of extra sales profits.

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