Amazon.com's announcement that it will sell subscriptions to its online catalog of movies and TV shows for $8.99 per month, without requiring membership in its $99-a-year Prime service that also offers free two-day shipping on many items, is making the streaming business a Fuller House as Netflix hikes prices on long-time users.
"While we don't expect a significant number of current Netflix customers to defect to Amazon Instant Video, it is likely that Amazon and Netflix will divide the remaining uncommitted market on a roughly equal basis, severely impacting Netflix's continued domestic growth," Wedbush Securities Inc. analyst Michael Pachter wrote in a Monday report.
Starting in May, Netflix will boost the price for users who were grandfathered into a $7.99 rate per month by $2.
Of the company's total of roughly 75 million global subscribers, Pachter estimates that the May price increase will hit about 30 million subscribers. The analyst calls for a first-quarter net gain of 1.8 million subscribers in the U.S. and 4.5 million international adds. Pachter rates Netflix underperform and expects the company to post $2.02 billion in first quarter sales, and earnings per share of four cents.
MKM Partners analyst Rob Sanderson rates Netflix a buy but concedes that "squishy guidance for domestic additions would not surprise us," in a report. Sanderson forecasts 2 million net paid additions in the U.S. and 4.4 million overseas, with earnings per share of 8 cents for the first quarter.
As Amazon.com becomes more aggressive, the question is how far the online video rivals are willing to go to secure and develop content. Both have had success with their originals and could seek to become even bigger players in Hollywood.
Investors have called for Viacom (VIAB - Get Report) to consider selling a stake in Paramount Pictures to Amazon.com or to Alibaba Group (BABA - Get Report) . Meanwhile, Variety reports that Alibaba is investing in reboots of Paramount's Teenage Mutant Ninja Turtles and Star Trek.
"Netflix has never made acquisitions," BTIG LLC analyst Rich Greenfield noted in a report that lists his top questions for Hastings on Monday. Greenfield said he would like to ask Netflix whether it would consider owning a studio on the company's earnings call.
Studios have been changing hands regularly in recent months. Chinese conglomerate Dalian Wanda Group Co. Ltd. agreed to buy Jurassic Park studio Legendary Entertainment for $3.5 billion in January, and in March Miramax parent FilmYard Holdings LL announced a sale to Qatari sports and TV group beIN Media Group. And Lions Gate (LGF) has acknowledged reaching out to Starz (STRZA) about a deal, and is also interested in bidding on a piece of Paramount.
Hastings has ambitions to make Netflix a household word around the globe. He might also consider seeking a brighter star in Hollywood.
Netflix stock was down almost 4% in afternoon trading on Monday, while Amazon's stock was up 0.8%.