The Effect Of Amazon's $2.99/Month Pricing On Netflix

Amazon.com, Inc. AMZN announced that its Prime Video offering was available in over 200 countries at an attractive introductory price.

Netflix, Inc. NFLX may need to respond by offering “tiered pricing in select markets sooner rather than,” Cantor Fitzgerald’s Youssef Squali said in a report.

Following a free seven-day trial, Amazon’s Prime Video is available at an aggressive price of $2.99 per month for the first six months. The cost of the service then goes up to $5.99 per month. Netflix offers basic, standard and premium pricing of $7.99, $9.99 and $11.99 per month.

Pricing Pressure

Amazon’s aggressive introductory and full price offer could exert pricing pressure on Netflix in certain international markets, “particularly those with lower per capita income where Netflix/Amazon streaming offerings could prove to be more supplementary than complementary,” Squali commented.

Amazon’s brand is better known than Netflix, which would likely boost adoption of Prime Video. Squali added, however, that these markets did not represent significant revenue for Netflix, and the company may not feel any pressure on ARPU [average revenue per user] for some time.

Competition Could Heat Up

Amazon’s latest move would likely result in increased demand for global and local rights.

Competition for rights could heat up, “driving content inflation/more originals,” the analyst said. He pointed out that Amazon’s content spend was an estimated ~$3-$4 billion, which was lower than the spend by Netflix at ~$6-$7 billion, while Amazon’s balance sheet was impacted by its “rapidly growing e-commerce business,” which should afford it “more flexibility in financing content purchases over time.”

Squali has Overweight ratings on both Amazon and Netflix, with price targets of $1,000 and $135, respectively. He considers the companies as being positioned as the “biggest beneficiaries of the positive secular trends within content streaming and OTT.”