Amazon.com, Inc. (AMZN) Launches Another Shot Across the Bow for Netflix, Inc. (NFLX)

Clearly, Amazon saw the Viacom kids shows as an important point of differentiation vis-a-vis Netflix. The company reportedly paid more than $200 million for the license ! Amazon.com, Inc. (NASDAQ:AMZN)’s deep pockets enable it to add content faster than it wins new Prime subscribers, which will allow Amazon Prime to rival Netflix in video content even with a smaller base of members. Long-term, this represents a serious threat to Netflix, because while some people might choose to subscribe to both services, others could drop Netflix if Amazon Prime became more appealing.

Watch out, Netflix!
For now, Amazon.com, Inc. (NASDAQ:AMZN)’s rapidly growing content library has not put a visible dent in Netflix’s domestic streaming growth. Netflix has added a total of 5.8 million domestic streaming members in the past four quarters, amounting to 25% year-over-year growth in the subscriber base .

Longer-term, though, Netflix needs to watch out. As the Netflix, Inc. (NASDAQ:NFLX) domestic subscriber base passes 30 million, growth may be harder to come by, due to the magnified effect of subscriber churn and the beginning of market saturation. Facing a competitor that is willing to pay top dollar for high-quality content could cause Netflix to return to its high-spending ways in order to drive continued subscriber growth.

Alternatively, if Netflix maintains its spending discipline, it will risk a drop-off in subscriber growth as some consumers choose Amazon Prime instead. Either way, Netflix will be hard pressed to keep growing fast enough to justify its current sky-high valuation.

The article Amazon Launches Another Shot Across the Bow for Netflix originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is short shares of Netflix and Amazon.com. The Motley Fool recommends and owns shares of Amazon.com, Netflix, and Walt Disney (NYSE:DIS).

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