Evaluating Amazon Post The HBO Deal

  • Amazon last month entered into a deal with HBO to broadcast older HBO shows to members on Amazon Instant Prime.
  • The first Batch of HBO shows will be available to Amazon Prime members starting today.
  • The deal will help Amazon to boost its video library, at a time when the game in the internet video streaming service has shifted to content rather than the technology.
  • Amazon continues to lag Netflix by a huge margin, but went past HULU and Apple TV in 2013 in terms of videos streams viewed.
  • The addition of fresh content to Amazon Prime could be an attempt to placate unhappy users after the recent price hike in Amazon prime membership fee.

Evaluating Amazon-HBO deal

The battle between the major players in the Internet TV space has moved beyond Software and service into the field of content generation. In this all important battle for content supremacy, Amazon’s (NASDAQ:AMZN) Instant prime service has for a major part been a far second to the leader Netflix (NASDAQ:NFLX), the largest internet TV service. Amazon, last month, had announced a deal which is a huge step ahead in the content race, yes we are hinting at Amazon’s deal with HBO.

In a huge content boost to its video service, Amazon has brought in a significant addition to its video library through its latest deal. The first batch of HBO shows, following last month’s deal, will hit Amazon Prime screens beginning today. The first batch gives prime members access to shows like The Sopranos, The Wire, Deadwood, Six Feet Under among various comedy specials, documentaries, and movies. The Amazon prime video library now hosts over 40000 movies, shows and other videos available to prime members. The addition of this content could go a long way in helping Amazon prime compete against Netflix.

However, for now Amazon streaming service is just a patch on Netflix and is a few years, if not more, behind the giant online video streaming service. For the uninitiated, Netflix video usage is over 10 times that of Amazon and Hulu combined, which are the next two biggest online video streaming services. Netflix is the undisputed leader in the space irrespective of the measure of judgement.

The Netflix service saw its market share increase to 57.5% of the video-streaming market in March 2014, up from 52.5% a year ago whereas Amazon’s increased from 0.6% to a 3% share. The table below displays the market share of the top players in the video streaming service.

Market Share March 2013

Market Share March 2014


















Source: Variety.com

The success of the online video streaming service providers seems to be taking a toll on YouTube, the go to destination for videos on the internet. Among the online video streaming service providers, while Amazon seems to be making improvements, Netflix remains the leader of the pack.

The silver lining for Amazon Prime in 2013 was the fact that the service surpassed Hulu and Apple TV in terms of market share and video streams viewed. However, it is deals like the one with HBO and a greater focus on in-house generated content which will help the company eat into the huge market share of Netflix. However, a question which will remain unanswered is the motive of customers to sign up for Amazon Prime membership. Is it the annual free shipping or is it for the video service? Hence an increase in the size of video library may not result in subscriber increase if free shipping is what motivates subscribers to sign up for a Prime membership.

In conclusion, the deal with HBO is something which once again brings into light the content battle which is currently underway in the internet TV streaming industry. Users value variety in content and companies have shifted focus from technology to variety and exclusivity of content. While it will be some time before Amazon becomes a serious threat to Netflix, deals like the one with HBO will enable them to compete better in the industry.

We continue to have concerns regarding the extremely high valuation multiples of the AMZN stock. Given its current LTM P/E of 484, we would stay away from this stock until a fair degree of certainty of earnings and earnings growth can be established. We currently rate Amazon stock 2.2/5, reflecting our negative outlook on the stock.

To see Amazon’s latest stock price movement, click here (NASDAQ:AMZN)

Virendra Singh Chauhan Virendra Singh Chauhan   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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Comments on this article and AMZN stock

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Christopher Leuchtman
Amazon does a terrible job of advertising Amazon Prime as a alternative to Netflix most people even have it don't really know about it or use it its got pretty much same stuff as netflix and some exclusives netflix doesn't have but Amazon has done a terrible job marketing it.
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