Instant Video Not Enough For Netflix, Amazon

Includes: AMZN, NFLX, OUTR, VZ
by: Mary Daniel

Netflix (NASDAQ: NFLX) is still experiencing problems. They have had slower subscriber growth and a sharp drop in their second quarter earnings. The streaming video company is also facing threats from companies such as Verizon Communications (NYSE: VZ) and Coinstar (NASDAQ: CSTR), which are launching their own streaming video services. Content costs are rising. At the same time pricing moves by internet service providers could lead to lowered bandwidth use.

Verizon's new Viewdini service allows customers with iOS or Android tablets and smartphones to download and enjoy entertainment from 11 to 18 content providers depending on the operating system. Verizon is providing this service through a deal with Coinstar's Redbox. Verizon owns 65% of the joint venture, with the remaining 35% owned by Redbox. What is unique about this deal is that it allows Verizon to offer the service outside of its footprint. Viewdini is not limited solely to Verizon customers. Anyone with a television, computer, tablet, or smartphone can take advantage of this new service offering. Meanwhile Coinstar will continue to operate its Redbox kiosks. Through this venture they can give people access to streaming as well as the more traditional means of movie viewing.

The venture is reminiscent of Netflix's offerings. Traditional DVD rental paired with instant streaming. However, this is not where it ends for Verizon. They are recognizing that not everyone prefers leaving themselves at the mercy of subscription-based providers. Verizon is providing its customers a chance to watch their shows and movies when and where they want while at the same time maintaining its traditional customer base through its Fios service. Verizon offers access to both worlds whereas Netflix is limited to the former. In this market, it is becoming increasingly clear that diversification is not just important for investor portfolios. Diversification is also important to companies.

Amazon (NASDAQ: AMZN) is another company that provides online streaming. It is also well-diversified. Though they are largely known for their online shopping business, the company also provides a vast array of services to its customers. One of their most recent additions is Amazon Instant Video. What is great about this offering is that Amazon Prime members are able to choose from thousands of free programs. The annual membership fee to be part of Amazon Prime works out to a cheaper rate than Netflix's streaming service. Also, it provides the member with free shipping on all orders through their online store. In this way, Amazon is a better deal for consumers.

Instant video might be the big thing now, but not everyone is open to it. And it is still new to many people that have had a hard time letting go of the more traditional subscription-based or rental services. It would seem the only way to prosper is to not put all of your eggs in one basket. Diversification in this, and every other market, is key.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.