Summary

Amazon launched the Streaming Partners Program in an effort to boost its Prime offering.

In the long term this is a positive, as it will likely to drive Prime subs growth.

It is a potential negative to Netflix, which is facing increased competitive risk in the US.

Amazon (NASDAQ:AMZN) launched the Streaming Partners Program as part of its Prime offering, in an effort to drive higher Prime ecosystem penetration. In my view, this is nothing new to the market given the recent growth of Prime in recent years, but it is an incremental positive for Amazon to attract additional subscribers for Prime. The pricing of $8.99/month compares favorably against Showtime standalone that cost $10.99/month, and Prime members now can enjoy Starz, which was not available as a standalone product. As for the implication for the OTT sector as a whole, stronger AMZN Prime video is a negative to Netflix (NASDAQ:NFLX), which is facing a maturing OTT market in North America and challenges in growing its domestic subscriber base (see « Netflix: Danger On The Horizon« ). As such, I remain bullish on AMZN and cautious on NFLX.

AMZN’s Streaming Partner Program is simply an OTT add-on to Prime and a marketplace for premium OTT content. The discount on Showtime and Starz content is an attractive selling point, and can only make the Prime ecosystem stronger by attracting cord-shavers/cutters. In terms of operations, Amazon oversees subscriber acquisition, billing and logistics infrastructure.

The Streaming Partner Program benefits subscribers in several ways. First, the free trial period and the attractive pricing could allow the platform to gain some meaningful traction among the Prime subs base. Second, and more important, leveraging OTT content to grow Prime subs will ultimately lead to higher revenue growth for Amazon, given that Prime subs’ spending is much higher than that of non-Prime members. This platform also gives the publishers a new distribution channel instead of investing in their own back-office functions. In short, both sides win and could benefit from this partnership in the long term as more publishers and content owners join the partnership.

While this is certainly a positive for Amazon’s ecosystem growth, it could add to pressure for Netflix, which is already facing a maturing US OTT market and tougher subs growth expectations. Recall that Netflix missed its Q3 domestic subs estimates on what the company believes to be an involuntary churn involving the transition towards Chip-PIN credit cards. My view is that competition from rivals such as Hulu, Amazon, HBO, DISH Network (NASDAQ:DISH) and Sony (NYSE:SNE) is the likely culprit for the miss and could be taking share away from Netflix, and I stand by that view.

Conclusion

Remain bullish on AMZN and cautious on NFLX.