Amazon Taking On Netflix

The "Unbox"

Amazon (AMZN) officially launched its much-anticipated movie download service today, directly competing with Netflix (NFLX) and other movie services. Dubbed "Amazon Unbox", the online store will sell movies from $7.99 to $14.99 to be downloaded directly to your computer. In addition, Amazon will also sell television shows for $1.99 per episode and rent movies for $3.99.

The advantages are obvious. With a high-speed internet connection, you can download movies in a fairly short amount of time instead of waiting a few days for your movie to arrive via snail mail, as is the case with Netflix. In fact, with progressive downloading, viewers can start watching the video just a few minutes after the download begins (like the buffered videos on YouTube).

These downloaded movies are forever yours. But due to copyright restrictions, you cannot yet burn these movies onto DVD/CD (although I'm sure the geeks are already preparing work-arounds).

The Netflix Advantage

Google & Apple are expected to launch similar services in the next couple months. Should Netflix be worried? Not yet.

There's one glaring concern: who wants to watch movies on a computer? The reason that sites like YouTube have become so popular is because the streams are entertainingly short, not 2 hours long. Although computer screens are getting progressively bigger, they still cannot compete with the larger television screens (especially HDTVs).

High-speed internet connections will also be a huge hurdle. For many, Netflix is an cheap alternative to high-priced cable. These cost-conscious consumers most likely do not have expensive high-speed internet in the first place! With most movies approaching 1 gigabyte in size, average connections will take hours, if not days, to download an entire movie (assuming there are no interruptions!).

The $3.99 price tag for movie rentals is also inferior to comparable Netflix plans. I currently pay $12.99/month for the unlimited 2 DVDs at-a-time plan. This normally equates to 10 movies rentals per month, or roughly $1.29 a movie. Is it really worth an extra $2.70 per movie to download from Amazon?

In the past year, Netflix has been displaying very high customer loyalty with low churn rates. With the popular “Friends” network and an average movie queue over 50, it will be tough for Amazon to steal away customers from Netflix.

If Walmart & Blockbuster failed to take on Netflix, why will it be any different for Amazon?