Amazon, Netflix Feeling Pressure From Higher Content Costs, Says Analyst

Streaming video-on-demand competition for exclusives and originals has become “fierce,” and streaming VOD content costs are rising, Wedbush analyst Michael Pachter emailed investors Monday. Video content spending dented earnings reported last week by Amazon (see 1610280053) and Netflix (see 1610170061), Pachter said, saying Amazon’s lower-than-expected gross margins were affected by an estimated $300 million in video content spending that hadn’t been included in forecasts. Netflix, meanwhile, posted higher-than-expected subscriber additions, but reported negative free cash flow of $506 million, Pachter said. Wedbush expects the trend of escalating content costs to continue for the foreseeable future, but sees the spending gap narrowing between the two, “approximately reflecting the quality of content as well,” he said. Comparing subscriber costs, Pachter said an Amazon Prime membership bundling Prime Video is $99 annually vs. $119 for Netflix, which could play out in Amazon’s favor this quarter. “Long time Netflix customers could be persuaded to switch this Holiday season as Amazon markets their video service more aggressively, and as Netflix completes its price increases on its remaining grandfathered subscribers, potentially bringing greater consumer attention to the price comparison and alternative content available,” he said.