Netflix addresses Amazon in its shareholder letter, noting that of its top 200 videos, only 76 are also available on Amazon Prime — up from 75 last quarter.
More generally, while Netflix’s mention of Amazon.com, Inc. (NASDAQ:AMZN) shows that the company views it as its biggest rival, Amazon Prime is weakened in the sense that the service isn’t really a true Netflix competitor.
That is to say, Amazon’s ambitions for Prime are fundamentally different than Netflix’s. To Netflix, the ultimate aim is to get more subscribers. But Amazon’s goals are much larger; Prime is a way to get people to buy more stuff from Amazon itself.
In addition to streaming video content, Amazon Prime also includes free two-day shipping on goods purchased from Amazon.com and free digital book rentals from the company’s vast lending library. In effect, Amazon Prime is really the service for people who love Amazon, not a true standalone Internet video service.
Amazon.com, Inc. (NASDAQ:AMZN) briefly tested Prime monthly memberships last fall, but ended the test after only two weeks. With no mention since, it seems likely that Amazon will continue to keep Prime a service that requires a big, upfront membership fee — a fee that might depend more on the cost of shipping rather than the cost of content.
For its part, HBO remains wholly owned by cable giant Time Warner Inc. (NYSE:TWX). Because of this ownership, HBO is hindered in the strategies it can employ against Netflix.
Specifically, although HBO may only cost $10-$20 per month, that fee must come on top of an already larger cable bill. While Netflix may cost a subscriber only $8, the real fee for an HBO subscription could be over $100 per month.
There have been rumors that HBO is considering offering its online service, HBO Go, to non-cable subscribers, but for the time being, those reports remain only rumors. Further, while HBO has superior original content to Netflix, it lacks the depth of Netflix’s content catalog.
Consequently, even if HBO was to completely sever its dependence on the cable providers, there would likely be few Netflix subscribers that would bail on Netflix for HBO.
Interestingly, the more valuable Netflix becomes, the more valuable HBO becomes to Time Warner’s shareholders. Right now, Netflix is worth about $12 billion. If HBO were to be spun off from Time Warner Inc. (NYSE:TWX), it could be worth at least as much as Netflix, and possibly far more.
Invest in Netflix?
But is Netflix worth investing in? With a price-to-earnings ratio over 600 (more than 30 times greater than the S&P 500) it’s hard to consider buying shares, at least from a fundamental perspective. What’s worse, as Zerohedge notes, the company is facing immense content liabilities.
Still, the company continues to be uniquely dynamic, shifting business models completely every few years. That kind of creativity could keep Netflix relevant for the foreseeable future.
The article Netflix Is Completely Changing Its Business Once Again originally appeared on Fool.com.
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