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MarketFoolery Mailbag: What if Amazon Offered Streaming Separately?

In this segment from the MarketFoolery podcast, host Chris Hill, Jim Mueller of Stock Advisor and Motley Fool Options, and David Kretzmann of Motley Fool Rule Breakers and Supernova answer an email from a fan who wonders what would happen if Amazon.com (NASDAQ: AMZN) broke out its video and music streaming services as their own offering.

Could such a move make them better competitors to Netflix (NASDAQ: NFLX)? Would it improve the company's video brand on its own?

A full transcript follows the video.

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This video was recorded on Oct. 18, 2017.

Chris Hill: Question from Matt Clemente -- and this dovetails off of our conversation yesterday about Netflix. Matt asks, "What if Amazon broke out not only the video streaming, but also music streaming as a combined separate service for, say, $10-$15 a month?"

For those who missed yesterday's episode, this was, Seth Jayson and I were talking about Netflix's latest quarter, and I made the point that, I look at Netflix and see a business that, over the next two years, is in really great shape. For whatever people may think of the valuation of the stock, not to say that they can't be disrupted five years from now, but I think over the next couple of years, they're in really great shape. You get some analysts hypothesizing this type of thing, and the example I used yesterday was Amazon. One analyst was like, what if Amazon breaks out Amazon Prime video streaming for just $7 a month? It's like, yes, that's a possibility, but until that actually happens, why don't we just hold off on that. [laughs] Before we get all twitterpated about that.

But I don't know, Jim. To Matt's question, when you think about competition for Netflix, where do you think things stand right now, and how much of a threat do you think that type of thing would be from Amazon?

Jim Mueller: I think it would help Amazon more than it would hurt Netflix. Amazon Prime video is buried within the Amazon ecosystem. There's Amazon, there's Amazon Prime, there's Amazon Video, there's Amazon Prime Video. You're using Amazon Video to watch Amazon Prime Video. When you go searching for a movie -- I just did it this morning. I ended up with DVDs instead of Prime Video. [laughs] So there's a branding issue that Amazon needs to fix. And if they broke that out, the streaming service, and tied it with music, I would probably buy it. I'm a subscriber and shareholder of both companies. Prime member, I guess.

But as for competing against Netflix, they already compete. It might make things a little more clarified and a little more focused for Amazon and Prime Video to have a business unit focused exclusively on that rather than as an adjunct bonus for being a Prime member. But not anytime really soon, being really serious. According to Sandvine, the last numbers in 2016, Netflix accounted for 33% of the primetime downloading, down-streaming, and Amazon Prime just 4%. So it'll be a while before they become a serious competitor.

Hill: And we've talked about this before. This is not like buying a car. This is not like buying a house. This is a situation where it's perfectly reasonable to expect people will have multiple streaming services.

David Kretzmann: Yeah. It was actually last year when Amazon announced they would be offering Prime Video as a stand-alone subscription offering at $9 a month. I don't know if that's still active, or what actually happened with that. But they did offer that. And the funny thing about it is, $9 a month over the course of a year, that would end up costing more than the $99 subscription for Prime, so if you're buying that, why don't you just buy Prime?

I think one advantage that Netflix continues to have in the streaming space is, they are truly global today, and no one else comes close to the global scope that they have. Netflix is now in over 190 countries. So they're getting that data, they're getting the habits, they're understanding the habits, the usage of all these users around the world in those different regions. And that data will increasingly be helpful for them as they try to figure out what content they want to invest in. For other companies that are stumbling a little bit more through a few different regions, not really on a global level, I think it's a little bit more of a shot in the dark with content.

I think, to Netflix's credit, they have had a stronger record of producing hits compared to Amazon. Amazon, obviously, has received its fair share of awards and things like that, but they haven't had the megahits that Netflix has pretty consistently been able to churn out every year. So I think that global data advantage will continue and probably even accelerate for Netflix, because they're the only company operating on that scale, and I think it'll be a while before Amazon or someone else really matches them there.

Mueller: Amazon is international. They are in Europe as well. But David, you're exactly right. Netflix has been collecting this data for years and years, and they have a big head start, and that's really helping them figure out what content to go after and what content to produce. Amazon will catch up, or will get more and more data, as they do more and more of this, as will Hulu and as will Disney when they launch their thing. But Netflix has a big lead in that department.

Hill: I totally understand why any company would keep information private, particularly when it comes to their membership base and all of the day that they have. That being said, I genuinely appreciate that Netflix, as they have spread across the globe, I love that they are sharing country by country what shows are really popular. For example, learning that -- and Jim, we've talked before about how, over the last few years, as they have expanded internationally, they have done a very good job of going to show-runners in different countries and producing shows that are native to the country, native to the language, that sort of thing. But the fact that, for example, in Ecuador, the most popular show in terms of streaming Netflix is Fuller House. That's just delightful to me. The Defenders, the Marvel series which I greatly enjoy --

Mueller: I've heard that Adam Sandler is really popular outside the U.S.

Hill: Is he? Tom Cruise certainly is.

Mueller: Oh, yeah, at least according to Netflix.

Hill: The Defenders is the No. 1 Netflix show in [South] Korea. Anyway, I appreciate that they show that stuff.

Chris Hill owns shares of Amazon and Walt Disney. David Kretzmann owns shares of Amazon, Netflix, and Walt Disney. Jim Mueller, CFA owns shares of Amazon and Netflix and has the following options: long January 2019 $110 calls on Netflix. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool has a disclosure policy.