Hulu

How Amazon and Netflix can take on Apple in the TV streaming biz

March 25, 2014: 2:48 PM ET

As Apple and Comcast explore a streaming partnership, Netflix, Amazon, Hulu, and HBO should form their own joint venture to compete.

By Sanjay Sanghoee

140225173314-n-netflix-vs-amazon-ad-wars-drone-delivery-00001909-620xa

FORTUNE -- Amazon (AMZN) is expected to unveil its new streaming video device in early April. The device, rumored to be a dongle similar to Google's Chromecast, will enable users to play online games and watch movies and TV shows from Amazon Instant Video as well as from Netflix (NFLX), Hulu Plus, and other sites.

The move suggests that Amazon believes the future of content distribution is in the consolidation of content through a single source and wants to become a streaming "gateway" for consumers. But with Apple Inc. (AAPL) and Comcast (CMCSA) in talks to set up a proprietary streaming service that would bypass the congestion of the web and Chromecast having made inroads as a gateway already, simply providing ease of access to multiple sites will not be enough of a differentiator for Amazon.

MORE: Against industry headwinds, Martin guitar stays strong

Customers in the digital age are impatient, and the bifurcation of content across so many platforms and so many media is a serious bottleneck to unlocking the full profit potential of streaming video. As a consumer myself, I find it extremely annoying to have to access, pay for, and keep up with several different sites to get a comprehensive movie and TV watching experience.

The remedy for this is for major distributors to pool their streaming libraries under one service to make the connection between content producers and viewers as streamlined as possible. That, in turn, requires long-term thinking.

Netflix, for example, could just piggyback on Amazon's efforts to reach a wider streaming audience, but that would be shortsighted. It may be the leader in this space right now but could lose market share to its competitors as binge-watchers max out on its offerings and look for variety. The smarter play would be to fill the gaps in its library with more current content that Amazon, Hulu Plus, and HBO Go offer, as well as take advantage of the marketing capabilities and customer knowledge of Amazon. Amazon's e-commerce platform is also ideal for cross-selling movies and TV shows with books, music, and other licensed merchandise.

MORE: Rahm Emanuel: Given a choice, Americans want cities over suburbs

At the same time, even though Amazon has more than 25 million Prime members, its video service is more of a subscriber acquisition tool than a profit center and lags both Netflix and Hulu Plus in market share, according to analysts. That means the online retailing giant could benefit from a partnership, both by gaining new Prime members and generating additional e-commerce activity. There is also little overlap in the libraries: Of the 200 top titles at Netflix, only 68 are shared by Amazon and 36 by Hulu.

Another reason for combining services would be to realize economies of scale in original programming, especially with HBO's well-established setup for film and TV production. Original shows like House of Cards (on Netflix), Alpha House (on Amazon Instant Video), The Awesomes (on Hulu), and Game of Thrones (HBO Go) have become immensely popular and arguably drive subscriber acquisition and retention, but are expensive to produce and market.

Here is how the various services stack up and complement each other:

Sanghoee-Graphic

The CEO of Netflix, Reed Hastings, recently blasted Internet Service Providers for obstructing the user experience by slowing down streamed content, but here too, a partnership between major online players can increase their negotiating power with cable operators and telcos. The future profitability of independent sites like Netflix could even depend on it.

MORE: DMI acquires Knowledge Path for $22 million

So why hasn't it happened yet?

Mainly because every streaming service wants to become the premier site for online entertainment, but they should keep in mind the airline price wars that have caused major damage to that industry. The ultimate result of runaway competition was forced consolidation amongst major carriers to survive and bolster profitability. That is what could happen here too.

Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator. He has an MBA from Columbia Business School and is also the author of two thriller novels. Follow him @sanghoee.

  • Why a Comcast-TWC merger ripens Netflix for an acquisition

    As competition deepens, the online video streaming company could look extra attractive to investors.

    By Sanjay Sanghoee

    FORTUNE – The future of Netflix (NFLX) could soon change dramatically, now that Comcast (CMSCA) has agreed to buy rival Time Warner Cable (TWC) in a $45 billion deal that would combine America's two biggest cable companies.

    With 44 million subscribers, Netflix has established itself as a leading player in the market for online on-demand video programming, MORE

    Feb 14, 2014 8:47 AM ET
  • Time Warner Cable, Charter are stuck in a prisoner's dilemma

    The two cable companies will need to strike a deal. But who will be the first to squeal?

    Jan 16, 2014 11:40 AM ET
  • Hulu is no longer for sale

    Hulu's big media owners choose to reinvest rather than sell.

    FORTUNE -- Hulu is no longer for sale, as the streaming video company's media owners have decided to maintain their shares and invest an additional $750 million in cash.

    In a statement, owners 21st Century Fox (NWS), NBCUniversal (CMCSA), and The Walt Disney Co. (DIS) said that Hulu now has more than 30 million monthly unique visitors for its service with videos MORE

    - Jul 12, 2013 1:37 PM ET
  • Parsing Jason Kilar's Yahoo pass

    What does "graciously declined" really mean?

    FORTUNE -- Earlier this morning, there appeared to be two finalists for the Yahoo (YHOO) CEO job: Interim CEO Ross Levinsohn and Hulu boss Jason Kilar.

    But now there is only one, as Hulu just issued the following statement:

    "As has been reported, Jason Kilar has been a focus of the Yahoo CEO search committee. He has graciously declined to be considered."

    First, let's leave aside the obvious MORE

    - Jul 6, 2012 3:11 PM ET
    Posted in: , ,
  • Pre-Marketing: Hulu no longer for sale

    * Erick Schonfeld: Why Hulu couldn't find a buyer

    * Annie Lowery: Little banks vs. big banks

    * The FT effect: When the pink paper talks, traders go wild

    * Uh oh: Are Groupon and LivingSocial inflating their "discounts?"

    * Morning Call: U.S. futures point higher, London rises early, European shares climb and the Nikkei slumps.

    * Done deal: Microsoft now owns Skype

    * Social legacy: People are leaving Facebook passwords in their wills

    * Today in sovereign MORE

    - Oct 14, 2011 6:49 AM ET
    Posted in: ,
  • Why corporate America needs more Reed Hastings

    Forget the consumer backlash. Reed Hastings deserves accolades for taking Netflix into the future even if it ruffles feathers.

    FORTUNE -- Reed Hastings is a visionary. Let's just get that on the table up front. It's been said before -- Fortune named the Netflix CEO the Businessperson of the Year in 2010, painting a portrait of a man who has made a habit of taking big risks that have paid off time and MORE

    - Jul 14, 2011 11:24 AM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.