The Streaming Business Gets More Crowded

Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Depending on your take on Barnes & Noble (NYSE: BKS) the company either just made a strategic expansion, or it just started travelling even faster down the road to bankruptcy.

The company announced that it would “Dive into Streaming,” as Andrew Marder of The Motley Fool put it in his recent article. The long story short is that the company will offer a streaming video service on the Nook, but the service will also be available on other tablets, televisions, and devices. Many people hear streaming video and they immediately assume that this product will be in competition with Netflix (NASDAQ: NFLX) and Amazon's (NASDAQ: AMZN) Prime service. In both a positive and negative for Barnes & Noble, nothing could be further from the truth.

The Barnes & Noble service will offer streaming movies, and customers will be able to add their physical DVD and Blu-ray discs to their account so they can stream these as well. However, this service ultimately is a buy or rent option and not subscription-based Netflix or Amazon Prime.

Andrew's take is that “this is one more strike against Netflix.” I disagree, because I believe that Netflix's primary attraction is its ability to stream unlimited movies and television shows for a fixed price per month. If a customer watches one show or 20 shows, Netflix gets paid the same amount. Amazon Prime's video streaming works in the same way, letting you stream as much or as little as you want for the $79 annual membership fee.

The difference between Amazon Prime and Netflix is that with Prime, you get free two-day shipping on any order fulfilled by Amazon. Both of these models rely on one thing:size. Since the deals with networks and movie studios are a single pay for unlimited play deal, the more customers paying the membership fee, the more profitable the company can be. This is a completely different situation compared to the Barnes & Noble offering.

Barnes & Noble is really taking on Amazon and Apple (NASDAQ: AAPL), and their buy or rent libraries. This is really no different than what Barnes & Noble does when it sells a book or a CD. If a customer sees a CD on iTunes for $9.99, on Amazon for $11.99, and at Barnes & Noble for $13.99 they probably will go with the cheapest choice. After all, there is no competitive advantage of having the music from a particular source unless it comes with bonus content. In streaming video when we are talking about buying or renting, these are two totally different markets as well. Customers who buy a video to download want to be able to watch the video multiple times. Customers who rent a video to watch don't care if they can watch it again.

On the rental side, Barnes & Noble is facing competition from Redbox (owned by Coinstar), Blockbuster (owned by DISH), iTunes, and Amazon. Since a customer can get a rented movie from any of these companies, the Barnes & Noble offering will almost certainly compete on price. When it comes to buying videos, iTunes and Amazon are the two primary competitors, with traditional retailers like Target, Wal-mart and others thrown into the mix. It might be better to own a video as a digital file, but there are still millions of DVDs and Blu-rays being sold and that won't change for a while. So how does this affect customers, and what does this do for Barnes & Noble?

If a customer wants to stream unlimited videos, they still have the option of the roughly 25,000 titles that Amazon Prime offers or the 60,000 titles that Netflix has. If a customer wants to stream unlimited titles from Barnes & Noble, they get exactly 0 to choose from. For customers looking to buy or rent videos, they have a lot of choices. While offering this on the makes some sense for Barnes & Noble, the news really isn’t that Earth-shattering. The company is now going to face the same price competition in buying and renting videos that it was already facing in books, magazines, CDs, and everything existing Barnes & Noble stores have in stock. Does this hurt Netflix or Amazon Prime? I don't see why it would; it's essentially a non-factor.

Could this help Barnes & Noble's bottom line? It's possible, if all the Nook owners decide to buy or rent their movies from the company. Even if this occurs, don't expect Apple or Amazon to shake in their proverbial boots. Apple's massive market of iPhone, iPad and Mac users will still likely stick to iTunes, and Amazon's Kindle users and shoppers on Prime will still probably stay with the company as well. If Barnes & Noble were offering a Netflix-like service this would be big news, and a terrible idea for the company. However, that's not what is going on; instead Barnes & Noble just faces a tough battle to sell something it didn't before.

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MHenage owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, and Netflix. Motley Fool newsletter services recommend Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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