Netflix, watch out.
That’s the conclusion from some analysts after Amazon’s big announcement late Sunday, as the e-commerce giant rolled out a monthly Prime membership for its video streaming service at $8.99 per month. The Seattle-based company will also offer a $10.99 per month option that includes other benefits of Prime like free 2-day shipping, music streaming, cloud storage, same-day/2-hour delivery in some cities, and more.
Amazon previously only sold Prime memberships at a $99 per year rate, with video streaming of TV shows and movies included as a perk. Now customers can subscribe on a month-to-month basis for either Prime video or the full membership. You won’t save money by subscribing to the monthly services versus the $99/year annual option, but now there’s the option to subscribe to Prime video to binge-watch a certain show during a given month, for example.
Breaking off Prime video as a separate monthly offering is another example of Amazon taking on Netflix, which recently upped the price of its standard streaming service for long-time subscribers from $7.99 per month to $9.99.
While Netflix still trumps Amazon in regard to the breadth of its video library and blockbuster original programming, Amazon has picked up some serious momentum since launching its Prime video streaming service five years ago.
Analysts from Wedbush, a financial services and investment firm, noted that Amazon’s decision to offer a monthly subscription option will “severely” impact Netflix’s growth in the U.S.
“While we don’t expect a significant number of current Netflix customers to defect to Amazon Instant Video, it is likely that Amazon and Netflix will divide the remaining uncommitted market on a roughly equal basis, severely impacting Netflix’s continued domestic growth,” the analysts said.
Added Wedbush: “We have long listed direct competition from Amazon as a competitive risk for Netflix, and this new announcement is evidence that Amazon intends to compete aggressively with Netflix.”
Mark Mahaney, an analyst with RBC Capital Markets, agreed with that sentiment, telling USA Today that Amazon’s move represents a “significant negative development” for Netflix.
Wedbush also said that it expects Amazon to spend more money to beef up its video catalog with original and licensed content. Amazon already has its own award-winning shows like Transparent and Mozart in the Jungle, while the company has invested millions of dollars for the rights to shows like Top Gear.
“In our view, Amazon’s standalone service will have the practical effect of increasing Netflix’s content costs; we expect Netflix’s costs to rise far faster than its revenues, and expect the company’s annual negative free cash flow to grow even more negative as a result,” Wedbush noted.
With Netflix preparing to reveal its quarterly earnings report on Monday afternoon, the timing of Amazon’s announcement is also likely not a coincidence.
“We expect some defections to occur to the new Amazon offering, and believe that the timing of the standalone subscription offering was timed to take advantage of the impending price increases at Netflix, scheduled for May 9, 2016,” Wedbush reported.
Time will tell if the new offering from Amazon and the $2 price hike impacts Netflix’s subscriber growth in the U.S. Netflix, which has 43.4 million subscribers in the U.S., has far more loyal customers than both Amazon and Hulu, one report noted last week. Netflix also has a strong brand and is well-known in popular culture, Bloomberg noted.
Though they compete in the streaming video industry, the companies also work together, with Netflix using Amazon’s cloud computing platform, Amazon Web Services.
We’ll be covering Netflix’s earnings report later today, so stay tuned for that. Shares of Netflix are down nearly 4 percent today.