Amazon’s Battle With Netflix Has Only Just Begun

Bill Carr, head of Amazon music and video, says company will expand SVOD in a 'methodical and thoughtful' way

Amazon Fire TV

Amazon.com may still be a long way from Netflix’s hefty marketshare, but its recent pact with HBO is just the beginning of an aggressive effort to compete, says head of music and video Bill Carr.

Carr says licensed and original SVOD are just parts of the digital entertainment and shopping megamall Amazon continues to build. “A lot of our value creation goes beyond the role of an aggregator,” he says. “Happily, every household in America has to buy things, and almost every household in America loves to watch TV.”

Amazon’s SVOD is tied to Prime, which for $99 per year gives members free shipping on millions of products, plus unlimited streaming video. Carr doesn’t expect to split video from that bundle, and says Prime Instant Video is increasingly a main reason people subscribe: “Having these things together gives us something that is unique in the customer value proposition.”

Amazon already has poured hundreds of millions of dollars into licensing premium TV and movie content, with its biggest splurge the recent pact with HBO for older seasons of hit shows for at least $200 million, according to analyst estimates. It also cut a Fox deal to snatch exclusive streaming rights to “24” away from Netflix.

The company will continue to be “methodical and thoughtful” about growing its 40,000-plus U.S. movie and TV show SVOD lineup in the U.S., Carr says. “We’re focused on differentiating our service against all services out there, whether that’s Netflix or even other premium channels,” he says.

That content investment includes originals from Amazon Studios, which is trying to capture the hype Netflix has enjoyed with “House of Cards” and “Orange Is the New Black.” After bowing its first two series last fall — “Alpha House” and “Betas” — the company will debut its first three kids’ shows this summer and has ordered six more series, including Chris Carter’s “The After.”

And now Amazon’s Fire TV set-top delivers a direct pipeline into the living room, a strategy Netflix has shunned.

It was important for Amazon to offer the device because “it is the single best instantiation of how a customer can enjoy Prime Instant Video in the living room,” Carr says, with features like fast streaming start times and voice-enabled search. “The goal is not to make money selling the device; it’s to make money selling services.” Amazon’s digital media services are available through many other devices “but the simple reality is, we are not 100% responsible for those things,” Carr notes.

At the same time, the $99 Fire TV offers a wide variety of other services, including Netflix, HBO Go, Hulu and Sony’s Crackle. “Who would want a device that only offers our TV shows and movies?” Carr asks rhetorically.

Amazon has been rumored to be exploring a free, ad-supported video service and unlimited music-streaming, possibly as part of Prime. Carr is mum on future plans, but says the Prime program could grow and change just as Amazon itself — once thought to be only a place to order books — is now an all-purpose retailer. “I suspect Prime will have a similar evolution, to become something even more interesting,” he says.

Today, Amazon has 25-plus million U.S. Prime members, and with the HBO deal and other new content may rise to as many as 50 million in the new few years — and erode Netflix’s subscriber base, according to a report by Bernstein Research. A number of Prime subscribers “may decide they don’t need Netflix, either for their children (as Amazon children’s content improves) or for themselves as they find enough content within Prime Video,” the analyst firm says.

To be sure, with 3% of video-streaming usage in March 2014, Amazon has a long way to go to catch Netflix, at 57.5%, per online-video vendor Qwilt.

But Carr, a 15-year Amazon vet, believes time is on his side. He says the company has an advantage in making decisions about what shows to greenlight or license for SVOD, because of its vast storehouse of data on what Amazon’s millions of customers buy and watch.

“We have the broadest selection on an (electronic sell-through) and SVOD basis,” he says. “We want to offer customers either things we know they want — or innovate on their behalf, for things we believe they will want.”

In a nutshell: Amazon is running a marathon, not a sprint.