Amazon (NASDAQ:NASDAQ:AMZN) is reported to be expanding its Prime Instant Video service by adding other on-demand networks. This essentially allows the company to move into the web-TV space amid the cord-cutting trend by enhancing its existing OTT product for the Millennial demographic. More important, this strengthens the overall value proposition of the Amazon Prime ecosystem, allowing the company to further attract subscribers who are key drivers of its core e-commerce business. In my view, Amazon is one of the best e-commerce stories globally given that it has evolved into more than just e-commerce by creating Prime to offer other value-added services, including video, music and cloud services, in addition to the unlimited two-day shipping. These components inherently make the platform highly sticky, drive higher spend per user and attract new users to grow its network. The ultimate result is a virtuous cycle and a highly sustainable business model for Amazon (see "Amazon: Still The Champ").
Similar to Amazon, Alibaba (NYSE:BABA) also is evolving beyond e-commerce by moving into media (see "Alibaba: Ecosystem Stronger Than Ever"), O2O (see "Alibaba: Shaping Up The Ecosystem") and financial services (see "Alibaba: Setting An Example In Mobile Payments" and "Alibaba: Scaling Up Internet Finance"), and this is why I'm bullish on Alibaba, because it is the only e-commerce player in China that has the right assets to create a superior ecosystem. I remain bullish on both Amazon and Alibaba, although my pecking order is Alibaba being first, followed by Amazon.
By the end of the year, Amazon Prime members will have the option of adding well-known movie and TV channels to their video subscription. Additionally, the company could bundle its own shows and offer them to consumers as subscription packages. The appeal of this product is that it could potentially attract cord cutters or the Millennial demographic that rely on broadband-only products for media consumption. As for the networks, they will get access to Amazon's immense customer base and reach these younger viewers that are a sustainable platform.
Although Amazon's OTT ambition is sound, it's worth cautioning that its growing penetration could potentially pose a threat to rivals such as HBO (NYSE:TWX), Hulu and Netflix (NASDAQ:NFLX) that are competing for almost the same clientele. With an estimated 40 million domestic Prime subs and potentially up to 80 million globally, Amazon is positioned to be a threat to Netflix, particularly when the OTT market in the US appears to be reaching maturity and saturation given the influx of products that have launched just this year. I note that Netflix's last quarterly domestic subs miss is hardly a credit card issue (see "Netflix: Not As Bad As It Seems"), and believe that the key reason behind the miss could come from competitive risk, which may be underestimated by the market.
I remain bullish on AMZN on the back of this news. Expansion of Prime Video is a key positive in enhancing the overall value of the Prime ecosystem, and paves the way for the eventual entry into a web TV service that could further attract subscribers from traditional pay-TV platforms.
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