The Wall Street Journal (WSJ) reported last Thursday that Amazon.com, Inc. (AMZN) is planning to launch a free TV and music streaming service, supported by advertisements. The announcement was perceived as a threat for Netflix, Inc. (NFLX), which is the country’s leading internet TV provider. Following the news, Netflix stock shed some of its value.
However, an Amazon spokesperson denied the news report the very next day, saying that the company “is often experimenting with new things, but [as of now has] no plans to offer a free streaming media service."
Last week’s news release bears much similarity to the one that WSJ broke in January this year. Amazon had quelled rumors the paper had stoked regarding the launch of a web-based pay-TV service earlier this year, by stating that the e-retail giant has no current plans to offer such services.
Netflix Keeps Itself Differentiated
The market seems concerned about Amazon's ability to pose serious competition to Netflix, but these concerns do not seem to hold any substance as yet. Netflix has differentiated itself in the market, building a large and loyal user base over the years. The company is expected to continue to record strong subscriber base growth despite rising competition in the market, as long as it continues to provide innovative content to its subscribers.
Moreover, Netflix will continue to benefit from developments in the category of internet TV from tech companies such as Amazon, because growth in the overall category will eventually support Netflix’s growth.
Amazon: Bigger Threat to Apple and Google
Amazon competes aggressively with Apple Inc. (AAPL) and Google Inc. (GOOG) in the TV and music streaming market. Yesterday, the company announced the launch of its video and game streaming device, Fire TV. The set-top box, which is similar to Apple TV and Google’s Chromecast, will help people stream content from their favorite service providers, including Netflix and Hulu.
Fire TV will also support thousands of Android games by next month. Users will then be able to play these games using an optional controller, which costs an additional $39.99. The controller will come with an app for the Kindle Fire, and 1,000 Amazon coins that can be used to buy games. Some of the large game developers, including Electronic Arts Inc. (EA) and The Walt Disney Company (DIS), are on board with Amazon to develop games for its Fire TV. However, it remains to be seen how successful the device will turn out to be.
The e-retail giant has priced its new product at $99, which is the same as the price of an Apple TV, and significantly higher than Chromecast’s price of $35.
Fire TV is not a novel innovation as it already has competing products circulating in the market. Its price does not help either; Apple prices its products at a premium, and while Amazon’s Fire TV offers additional features such as larger memory and more games, consumers may not prefer buying Fire TV over Apple TV due to Apple’s strong brand image.
Considering that Fire TV provides better gaming options and will be quite successful among gamers, the challenge Amazon faces is whether its product will be able to attract avid gamers enough for them to forgo their PS4 and Xbox consoles in favor of a one-stop solution for both gaming and video streaming.
Bigger Innovations Are Yet to Come
The launch of Fire TV and Amazon’s denial to introduce an ad-supported free streaming video service serves to allay Netflix’s investors. Amazon’s product developments in the video and streaming industry are expected to continue to drive demand for online streaming services, positively affecting Netflix. The entry of large tech players into the industry has certainly made things even more interesting in the steaming video industry, which is expected to continue to see innovations and technological developments as these large tech players compete with one another to increase their respective market shares.