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Analyst: ‘Double-Whammy’ of Digital Speculation

1 Sep, 2010 By: Erik Gruenwedel

Despite Amazon and Apple expected to announce major digital video rental initiatives, sales and rental of DVD and Blu-ray Disc movies should continue to dominate home entertainment in the near term, an analyst said.

Eric Wold, with Merriman Curhan Ford in New York, characterized reports Amazon and Apple want to bow subscription and transactional rental services, respectively, as a “double-whammy of digital speculation” that he thinks will have little or no material effect on Netflix and Redbox.

Apple, according to Bloomberg News, is expected to bow a revamped Internet-enabled AppleTV unit today for $99, which would include Netflix streaming. In addition, the tech giant is pressuring studios to allow it to emulate its success with music downloads by offering episodic TV downloads for 99 cents compared to the current $1.99 on iTunes.

Amazon is eying a pre-holiday launch of a subscription rental service that would offer streams of movies and TV shows similar to what Netflix carries, according to The Wall Street Journal. Amazon currently offers both transactional video-on-demand (VOD) and DVD/Blu-ray Disc of new releases.

“While we continue to see many years of solid revenue-generating opportunities out of the physical DVD/Blu-ray market, investors cannot ignore the additional choice being provided to consumers as well as the desire of Hollywood studios to maximize their revenue- and profit-generating potential,” Wold wrote in a note.

The analyst said Amazon’s possible entry into streaming could have a “minimally negative” impact on Netflix, considering the Los Gatos, Calif.-based online DVD rental pioneer’s first-mover position in the market and subscriber base exceeding 15 million members.

“Netflix has proven to be a formidable competitor when it successfully fought off DVD by-mail subscription services launched by both Blockbuster and Walmart,” Wold wrote. “We believe that not only does Netflix have a strong head-start over Amazon, but the recent streaming content deals should give [it] a solid content lead over Amazon, unless, of course, Amazon is willing to pay up for the same content.”

Wold said Netflix and Redbox continue to co-exist within the home video world without much meaningful cannibalization between the two, other than taking market share from the brick-and-mortar stores. He doubts a possible foray by Amazon into rental streaming will upend the status quo.

“Most consumers will continue to use a variety of rental options depending on the situation, price and convenience options, as well as availability of certain content – without ever completely marrying themselves to any one service,” Wold wrote. “Therefore, we do not believe the addition of a streaming service through Amazon (with an undefined selection of content) would be a huge draw away from the price and convenience offered by Redbox as well as the selection of new release content, which would most likely not be available on Amazon as it is initially launched.”

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