Reaction to Amazon’s content deal with HBO this morning was decisive: Neftlix just lost.
Amazon gains three things from the deal: It sets itself apart from the streaming-video leader; gives customers a reason to continue paying $99 for its Prime program; and maybe provides additional incentive to buy its devices.
Up until now, Netflix has enjoyed having a much deeper catalog of desirable content, but one deal alone turns the tables.
“We believe that Netflix has enjoyed an advantage in content selection,” said Stephen Shin, an analyst at Morgan Stanley, according to The WSJ. “Today’s news is a clear sign that Amazon is intent on closing the content gap with Netflix, which validates Netflix’s recent decision to raise prices to fund more content acquisition.”
Netflix CEO Reed Hastings said yesterday, in a letter to shareholders, that the company plans to hike its monthly subscription price for new customers later this quarter.
But Amazon had to dig deep to out-gun Netflix on this one. In fact, here’s one guess on how precious the HBO deal is:
While financial terms of the agreement were not disclosed, Michael Pachter of Wedbush Securities estimates that based on recent content deals that involve payments of $250,000 per episode for popular TV programming, that Amazon’s annual payments are “likely well above $200 million.”
For perspective, that is almost the mega-retailer’s entire profits in 2013, which totaled $274 million.
Amazon does not typically release specifics on partnerships, but if this does rise to the material status, look for details tomorrow during the company’s first-quarter earnings release.
Of course, deals can be structured in several different ways, so it’s premature to assume that Amazon just became a break-even company again after buying a bunch of old “Sopranos,” “The Wire,” “Girls” and “True Blood” episodes. One point to make is that the agreement focuses on older HBO series and seasons, with a three-year delay for current and recent seasons and shows.
But still, the quality is there with 115 Emmy awards represented among the TV shows that will become available in May, according to Pachter, who talked to Brad Beale, Amazon’s director of content acquisition.
“We believe the HBO deal positions Prime Instant Video as a viable competitor and potentially more appealing alternative to Netflix,” Pachter said. “Through the HBO deal, in addition to its own original content, Amazon has the potential to offer close to 70 different series that we believe HBO owns outright, with multiple seasons available for the more successful shows. In comparison, we believe that Netflix’s original series figure is closer to 10, with up to only two seasons available.”
Plus, it’s an advantage that Amazon could have for awhile.
“We can’t imagine that Netflix didn’t try to go after this deal, and we believe that this deal signals that HBO won’t be able to provide a standalone (i.e. not tied to a cable operator) online streaming service any time soon,” Neil Doshi, an analyst at CRT Capital, wrote in a note to clients. “But given the generally solid line up of content that Amazon Prime will get, we believe that this could put some pressure on Netflix in the near term.”
Amazon’s stock is down $5.33, or 1.6 percent, along with a broad market decline, but Netflix was hit much harder, tumbling $16.15 a share, or 4.3 percent.