Monday, January 28, 2013

Movie Streaming is Complementary with ...

Netflix's business model is to make money from movie rentals, and increasingly, rentals of movie streaming. Amazon prime also offers movie streaming but this is a sideline from its larger online services. Amazon prime is willing operate movie streaming as a loss-leader and make up the losses on the increased demand for complementary services. As Alexander Mizan points out:
Amazon is aggressively trying to set up exclusive content deals and is willing to pay more for them than NFLX, as the EPIX deal showed lately. Unlike NFLX that relies on streaming to make a living, Amazon's model for Prime is that of a loss leader, making up the difference in more retail sales. Granted, NFLX has a first-mover advantage in the business but AMZN has a bigger bank. It will be an interesting race. Another formidable competitor in streaming is Hulu, which is partly owned by Disney, NBCUniversal and Fox. Although rather small still, it's offering streaming service at the same price point as NFLX and (being owned by the studios themselves), it has a higher potential for quality programming.

Are these complementary relationships strong enough to undermine the stand alone streaming business model? 


  1. To answer in one word, yes. Eventually everyone will move to a cheaper product, if everything is the same. However, if Netflix continues to produce original product that people want then they will continue to make a profit. I have Netflix because it offers enough movies and shows that I want, but I still use redbox and purchase movies as well. If someone offered everything that Netflix offers along with what redbox offers at a cheaper price, then I would get rid of Netflix. However, that hasn’t happened yet. Also, my son loves How to train your dragon and there is a Netflix only series that he loves. So it is hard to get rid of them when I cannot get everything on a different program. If amazon or any other complementary relationship can get programs like this, then it would be easier to get rid of Netflix, but until this happens I will continue to have Netflix.

  2. First off I will have to say I am a huge fan of amazon and am a prime member for almost two years now. It started as a free student trial and once they got me they had me! Their two-day shipping is perfect for a flight attendant on the go but any way back to the topic. I work for a major domestic airline and as of yesterday when connecting to our free wifi service you now have access to amazon prime streaming videos. This is great advertising move on part of amazon because just like me receiving my free trail people will watch an episode of a show and then want to sign up so they can keep watching because amazon has exclusives just like Netflix. This is smart “advertising designed to increase the attractiveness of the product makes demand less elastic.” (Froeb, 2014) Where maybe consumers did not want to spend an extra $100 a year on a prime subscription this form of advertising alleviates some of the sensitivity to price. Even though this aspect of the prime membership is not their money maker you can not access the streaming videos without going to the amazon homepage and they are willing to take this loss because they will make it up with new customers being brought to the site and making complementary purchases.

    Froeb, e. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage.