Amazon vs. Netflix
Amazon takes aim at Netflix, the market leader in streaming video. Amazon is following Netflix’s lead by expanding their Prime service globally in 2017.
Netflix was prepared to launch in Japan this October unchallenged until Amazon announced it would rival the streaming giant by making content available for Prime customers.
While Netflix is constantly cash-strapped after enormous content and expansion costs, Amazon sits atop a pile of cash ready to outspend Netflix at the right moment.
Global Streaming Showdown
As of September 2016, Netflix has 83.28 million paying subscribers – 46.48 million in the U.S., and 36.80 million internationally.
Amazon has 60 million subscribers, but many are only interested in the free shipping benefits. Streaming video is viewed as a bonus to Amazon’s Prime service, but for many, it is not essential.
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Although Amazon has recently started producing substantial original content, the company has been playing the slow game.
Amazon’s strategy is allowing Netflix to lay the global groundwork while they track opportunities and pitfalls.
Amazon’s time on the sideline will likely end in 2017.
Netflix Profit Problems
For every $8 per month, Netflix receives from its nearly 84 million global subscribers; over $6 is absorbed by content costs, either original or licensed.
Netflix is historically bad at making a profit.
For the $8 they receive each month per subscriber, only 17¢ translates into net income. Alternatively, throughout 2016, Netflix will collect on average $96 per subscriber, but only $2 will convert into profits.
On a recent call with analysts, Netflix executives said the company now expects higher free cash flow burn because producing original content consumes more upfront capital. Somewhere a studio executive is laughing.