The Streaming Battle Is Heating Up

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

Oh what a wonderful time of year it is, if you offer streaming video to customers. During the holidays, each of the main services in this field see an uptick in customers for two prime reasons. First, as people receive gifts for the holidays that offer streaming video they want to check out the competing services. Second, one company in particular offers a service that is complimentary to what it does best, and that is sell merchandise. If you haven't guessed already, the major players in this field are Netflix (NASDAQ: NFLX), Amazon.com (NASDAQ: AMZN), and Hulu. However, a new entrant into the field is about to come along and I believe this partnership offers a greater competitive threat than people think. That partnership is Redbox Instant, which is being offered by Coinstar (NASDAQ: OUTR) and Verizon (NYSE: VZ).

So what makes me qualified to talk about the competitive advantages and disadvantages of each of these companies? To be quite honest, I use each of their existing services and I use them for different reasons. I've been a Netflix subscriber for a while, I signed up for Hulu Plus last year, we use the Redbox kiosks near my house on a regular basis, and my cell phone service is with Verizon. I won't claim to be an expert, but I do have a pretty good understanding of each service and how it works within the context of how many customers think about the companies. That being said, I'm here to tell you there are about to be some serious changes in the streaming business.

In a recent article on Fool.com, Rick Munarriz wrote about the Redbox Instant partnership and in the end concluded, “despite the meandering share price these days, Netflix can't lose.” His general premise was that while Redbox Instant at the rumored $6 a month is cheaper than Netflix, that the lack of television shows in the catalog might be a deterrent to customers signing up. Since television shows are a “major component of both Netflix and Amazon Prime” this creates a hole in the Redbox Instant streaming catalog. In addition, he said that though Redbox Instant will offer an $8 plan with unlimited streaming and 4 nightly DVD credits, but that Netflix's convenience of home delivery of DVDs, and unlimited rentals would continue to “set Netflix apart.” In the end, he suggests that if Verizon were to offer its customers unlimited streaming for Redbox Instant instead of using valuable data on their wireless devices, that this could be a major differentiating factor. However, he also believes if Verizon made this move, that AT&T would likely partner with, or buy Netflix outright, to combat this competitive threat. To all this I say, Rick might be right about the lack of television shows being a missing piece, but on several other scores I think he is missing the point.

I know that Netflix believes Amazon is a serious competitor, and this time of year the threat from Amazon is even more pronounced. When shoppers like myself go on Amazon to buy gifts, one thing you can't avoid seeing is “get free 2 day shipping when you sign up for a trial of Amazon Prime.” Well I'll admit they hooked me this year. I'm signed up, and where Amazon Prime's Instant Video offering failed in the past, the company has made significant progress in becoming a competitive threat to Netflix. Previously, the company lacked watchlist or queue feature and there was no dedicated app for Instant Video, both issues have been resolved in the last year. More importantly, Amazon has improved its catalog significantly. In fact, comparing my Netflix queue with my Amazon watchlist, I can say there are very few differences. That is not good news for Netflix. Amazon's offering is cheaper at the equivalent of $6.58 per month versus $7.99 for Netflix. In addition, Amazon offers free 2 day shipping and a host of other features. Customers are going to ask themselves, why would you keep Netflix if you can get all of this from Amazon? While Amazon may steal from Netflix on movies, when it comes to television, Hulu Plus has everyone beat.

With firms like Comcast, Disney, Time Warner, and others involved, the ownership and distribution of Hulu is a bit convoluted. However, even with this complicated structure, Hulu does repeat television like no one else. If you have Hulu Plus, you can watch almost every mainstream television show the day after it was aired. While it's not the same as using a DVR, in some ways it's better. Most Hulu Plus programs have few commercials, and they are very short in length. Some newer offerings actually shorten the program exclusively for Hulu Plus subscribers. Specifically, the deal with WWE for their Monday Night Raw show includes a one and a half hour version of the normally three hour program. If you don't think this is a big deal, consider that Monday Night Raw has aired more weekly episodes than any other television series in history. Hulu Plus' content is constantly fresh, so the company doesn't have to worry about users complaining about the selection. How does Redbox Instant fit into this seemingly crowded picture?

Redbox Instant will offer features available nowhere else. Where else could you stream a movie, rent a movie, buy a movie, and rent new release movies and video games? Suggesting that Verizon might need to offer unlimited streaming is missing the point. Netflix's audience reportedly uses over 30% of bandwidth between 9 PM and midnight. Where do you think they are using this bandwidth? Duh! They are at home or at a location with Wifi. Customers are too well educated about data plans and their cost, to just be out and about streaming shows from Netflix or another service on a regular basis. Since unlimited data is still available through most at home high-speed Internet subscriptions, the use of data is a non-issue. Rick says that Netflix can't lose, I respectfully disagree.

To be blunt, Netflix has plenty to lose. Amazon Prime is going to gain subscribers over the holidays. When they realize the Amazon and Netflix catalogs are actually pretty comparable, it's Netflix that will get the axe. Subscribers that want the best television programming will go to Hulu Plus. Once Redbox Instant is launched, I think you'll see this service take subscribers from both Netflix and Amazon. The streaming battle is heating up, and unfortunately for Netflix investors, everyone is gunning for their customers.


MHenage owns shares of Verizon Communications. The Motley Fool owns shares of Amazon.com and Netflix. Motley Fool newsletter services recommend Amazon.com 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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