Here’s Why Netflix Can Be Threatened By Amazon Video’s Global Expansion

Amazon Prime Video is now available in a few countries such as the U.S., the U.K. and Germany, with a planned roll out in India, as well.   Reports suggest that  will soon be expanded to about 200 countries worldwide.  This would make Amazon (NASDAQ:AMZN) a strong direct competitor to Netflix (NASDAQ:NFLX), which went global earlier this year. While Netflix has a strong user base in the U.S. and is growing rapidly in international markets, its main competition in these regions was primarily from local players in the streaming media space.  In Q3 2016, Netflix added 3.2 million subscribers internationally surpassing its initial guidance of 2 million subscribers. However, with Amazon in the fray and several other perks available to Prime members (Amazon also has a standalone Video offering), Netflix will now need to compete against a strong global player. Quality of content is the key area where the two companies will battle it out and with Amazon launching its show “The Grand Tour” in several countries, including the recent launch in Australia, Netflix might face the heat as Amazon looks to invest heavily in original content next year.

See our complete analysis for Netflix

Amazon Investing Heavily On Original Programming

Netflix’s popularity in the U.S. is primarily due to its focus on original programming and exclusive content, which is popular among its audience. While Amazon launched its standalone video service in the U.S. in April this year, pricing it lower than the cost of a Netflix subscription, it did not have a significant impact on Netflix’s user’s base. In Q3 2016, the company added 370,000 domestic subscribers as against a guidance of 300,000.

While Netflix is steadily increasing its spending on content to retain and grow subscribers, this strategy appears to be working in the U.S. However, it is still early days for Amazon video and the company is working aggressively to build its content library. Amazon is planning to spend nearly $ 4 billion (corresponding figure for Netflix is $ 6 billion) on video content this year and this number is likely to increase next year.  (Read Netflix Jumps On Better Than Expected Subscriber Additions).  It appears that with its deep pockets, Amazon can match Netflix’s content spend in the future and provide stiff competition to the latter.

International Growth Strategy Differs – But Which Is Better ?

In international markets, both companies have a different expansion strategy. Currently, Amazon has been expanding slowly, one region at a time and is looking to provide local video content. For instance, in India Amazon is tying up with local content producers to get access rights to more “mass content” or develop content which appeals to the local audience. Similarly it is in the fray for rights to popular cricket events (such as the Indian Premier League), which get the highest viewership in the country. Netflix on the other hand is targeting more elite audience in the country through its “foreign” shows which appeal to only a certain section of the country. The biggest limitation Netflix faces for a faster expansion in India (and other international markets) is lack of local content to appeal to the mass audience. In this aspect, Amazon appears to be taking a different approach which can impact Netflix’s subscriber growth.

Amazon is getting serious about its streaming business and, with deep pockets and rich product offering, it will be a formidable player.  With significant spending on content, will building locally libraries across the globe to be a tough competitor for Netflix. While Netflix appears unscathed thus far, it might start to feel in the heat in the coming quarters.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research