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Netflix stock has been on a tear today, up more than 11 percent to almost $74 as the markets readied to close. The bump, even as the Nasdaq traded ever so slightly down, was based primarily on what amounts to a “buy” rating from Morgan Stanley’s Scott Devitt.
The gist of Devitt’s upgrade of the beleaguered Netflix, is that Amazon’s own streaming video service embedded in Prime isn’t a direct threat to Netflix and its streaming business in the United States.
Prime works as a sort of “freemium” model. For an annual fee of $79, Prime members get two-day shipping, access to a Kindle book library, and unlimited streaming of Prime Instant television and movie fare – including shows like Sons of Anarchy, Downton Abbey, Thor and Dark Shadows. But the TV and films are meant to supplement additional rentals of movies from Amazon (and ultimately help sell more Kindles). Devitt argues that Prime Instant by itself isn’t enough to satisfy people’s entertainment appetite, and isn’t designed to be.
“This offering only works if Amazon.com keeps Prime Instant Video tethered to Prime,” Devitt writes. “Once they offer a standalone product, they will face the Netflix content gap, which will cost an incremental $1 to $1.2 billion to close.” In other words, if Amazon wants to catch up to Netflix, it’s going to cost a huge amount, and Devitt thinks Amazon has other initiatives on which it would rather spend its money.
As with every new business Amazon decides to go after, whether it is tablets or high-end fashion, there is reason to be scared if you are a competitor having to face them down. After a series of missteps, Wall Street took every opportunity to hammer away on Neftlix’s prospects and share price – Netflix stock (NFLX) is down almost 75 percent since its July 2011 peak – increasing competition from Amazon was just another reason for the battering to continue.
Devitt is saying the Amazon threat seems to be over. And with its expansion outside the United States, and entrenched customer base at home, Netflix, not Amazon seems poised to be the largest player in streaming video. “Netflix remains the only pure-play streaming service with global ambitions,” Devitt writes. “If anyone wins on a global scale, it will be Netflix.”
